If you’re thinking about filing for bankruptcy, then it is time you get the facts straight from the horses mouth before it’s too late. Filing for chapter 7 or chapter 13 bankruptcy can be a major decision in your life and you won’t want to be misinformed. Keep reading to learn more about these common bankruptcy myths and good luck to you!
Bankruptcy Erases all Debt
One of the most common beliefs about bankruptcy is that all of your debts simply get erased when you start the process. While it is true that bankruptcy can help you discharge and pay off debts, there are some types of debts that will never just be erased.
What Bankruptcy Debts Can’t Be Discharged?
- Child Support
- Court Judgments,
- Tax Debt
- Student Loans
So if you’re thinking about considering bankruptcy for the above issues, then you might want to reconsider.
Discharged Debts Will No Longer Impact Your Credit Score
It may seem logical that if a debt is discharged in bankruptcy it is also removed from your credit report and no longer affects your credit score. In reality, that isn’t the case.
Even debts that are erased or paid off through bankruptcy will remain on your credit report and affect your credit score for seven to ten years. However, their impact will lessen as time goes on and eventually they will disappear entirely.
You’ll Lose All Your Assets
Another very common myth is that those who file bankruptcy end up losing everything. But in most cases, this simply isn’t true either, and you should be able to keep the majority of your property.
Bankruptcy doesn’t necessarily mean you will have to give up your home, your vehicle, or all of your other assets. However, you may end up having to liquidate some of your property, but you are able to declare exemptions for daily necessities. Such exemptions could include your home or your car. We would also like to state that your other possessions may hold no financial appeal to your creditors, simply because they aren’t valuable enough or their value has depreciated too much over time.
Know The Difference Between Chapter 7 and Chapter 13
Most all Chapter 7 bankruptcies are what is called no-asset cases, meaning no property or cash on hand is turned over. Under Chapter 13 bankruptcy, you keep your assets but their value is used to negotiate a repayment plan.
Bankruptcy Works The Same Way For Everyone
Despite what you may have heard, bankruptcy doesn’t affect everyone’s finances and credit the same. Just because you know someone who went through a bankruptcy doesn’t mean your outcome will be similar.
Among other factors, the outcome of bankruptcy depends on the severity of your debt, the number of debts, the types of debt, and your credit score. For example, if you have a relatively low amount of debt related to only a few accounts, your credit score won’t take as much of a hit as someone with a more severe case.
Bankruptcy Will Destroy Your Life Forever
This is one of the biggest myths about bankruptcy of all time and no your life doesn’t suddenly become ruined forever. Over time, your finances and your credit will recover.
You can expect limited access to credit and higher interest rates (you can read more about that here) for about seven to ten years, but it won’t take that much time to rebound. In fact, you will probably receive more credit offers than ever from people trying to help you get back on your feet again, but beware of offers that come with extremely high interest rates.
If you or a member of your family ever has to declare bankruptcy, it is not the end of the world, so don’t sweat it and keep your head up.