Bankruptcy myths are fairly prevalent. There is a lot of misinformation out there. Oftentimes, people repeat myths that they have heard from someone else without checking to see if what they’re saying is factual. Once people hear these myths enough times, they start to believe them, even if it’s clear that the myths are not true.
Unfortunately, some of these myths can change the way that people approach bankruptcy and can even subconsciously limit their options. Here are a few of the most common bankruptcy myths that need to be eliminated from the water supply.
Myth: Bankruptcy stems from frivolous spending
There are some bankruptcy cases wherein frivolous and unnecessary spending leads to overwhelming debt. But bankruptcy most often happens due to factors beyond filers’ control, like high medical bills or job loss during a recession. Most people who file for bankruptcy didn’t make any financial mistakes and they aren’t irresponsible. They are just victims of their circumstances.
Myth: You’re going to lose everything
People are sometimes concerned to file for bankruptcy because they think they’re going to lose everything they own. Only a very small fraction of Chapter 7 filers have any of their assets sold to repay their creditors. Additionally, Chapter 13 filers do not risk the forced sale of non-exempt assets at all. You will likely not lose anything by filing for bankruptcy and will certainly not lose everything.
Myth: Your credit score will never recover
Finally, some people avoid bankruptcy because they think it’s going to serve as a black mark on their credit score, preventing them from getting credit cards or mortgage loans in the future. While bankruptcy does result in a temporary hit on your credit score, it certainly can recover (and even exceed its current value) over time. Additionally, missing payments on the debt that you owe will also have a negative impact on your credit score, so bankruptcy at least means that you’re moving in a positive direction and working to fix your debt.
Do you have questions about how the bankruptcy process works? Make sure you take the time to look into all of your options.