As with most complicated legal proceedings, myths routinely circulate about the benefits and repercussions of the bankruptcy process. These myths and common misconceptions may stem from a minimal understanding of the legal complexities surrounding bankruptcy, the one marginalized social view of filing for bankruptcy or the fact that people with unique personal and financial circumstances will always experience the bankruptcy process differently. In any case, myths either capture only a fraction of the truth, or they may be entirely false. It is important that you know the facts when it comes to bankruptcy and to help you be a more informed and knowledgeable consumer, our firm has provided some common bankruptcy myths.
People file for bankruptcy because they are financially irresponsible.
This myth couldn't be further from the truth. More often than not, individuals choose to file for bankruptcy because they have fallen victim to the unfortunate circumstances of a struggling economy. Job loss, lay-offs, and pay cuts are much too common in the current American job climate and they pose debilitating threats to people who do not have a sufficient income to pay what they were once previously able to pay. Other situations such as divorces, injuries, and illnesses can be unforeseen and largely uncontrollable forces that place people into debt. Combine this with the subprime mortgage crises, an abundance of underwater loans, predatory lending practices, and a variety of other factors, and the facts are clear: Times are tough. In fact, times are so tough that it is estimated that roughly 1.38 million Americans filed for bankruptcy in 2011 alone. The bottom line debunking this myth is that bankruptcy can affect anyone, regardless of race or social class.
Bankruptcy permanently ruins credit.
While it is true that filing for bankruptcy will affect an individual's credit score, the impact is nowhere near permanent and your credit will not be ruined. Filing under Chapter 7 will be apparent on your credit for ten years from the date on which you file and Chapter 13 will remain on your credit for seven years. It is also important to note that your ability to get a loan is not hopeless just because there is a bankruptcy in your past. These actions are at the discretion of creditors and lenders, and your financial and personal situation at the time will also be considered. By organizing your finances and preparing for your financial future early in the bankruptcy process, you can rebuild your credit and achieve economic stability.
Bankruptcy will solve all my problems.
Depending on the chapter of bankruptcy you file under, you can benefit in distinct ways. Discharging certain unsecured debt or restructuring payments that will allow you to keep your property can be small victories within the bankruptcy process. While you may have heard bankruptcy can provide you with a fresh start, you may have some debt obligations that you must still fulfill. Bankruptcy is an excellent means to provide those in need with debt relief, but it will not solve everything on its own. Working with an attorney from our firm can equip you with the necessary resources, skills, and knowledge that can allow you to create and maintain a solid financial life.
I can spend as much as I want when I know I'll be filing for bankruptcy.
This is an extremely incorrect myth that can result in serious legal consequences. Maxing out credit cards or spending irresponsibly with the expectation that those debts will be discharged is not a good idea. Bankruptcy proceeding involve lengthy and thorough investigations and assessments of your financial background. When such negligent actions are caught, you run the risk of being charged with fraud, which poses serious penalties.
You will lose everything.
This myth is a common exaggeration relating to bankruptcy, and it is much too harsh to believe. The federal bankruptcy code was designed to provide debt relief, not to turn people to homelessness. Depending on your case and the legal action you take, state and federal legislation allows for exemptions that will protect certain assets and personal property. In addition, you may be able to restructure debts into a more feasible plan that will allow you to keep everything you have.
All debts will be discharged.
The discharging of your debts depends heavily on the circumstances involved and the actions you take. Depending on the chapter you file under, certain unsecured debts, such as medical bills and credit card debt, can be discharged. These situations can vary, but debts such as child support, student loans and certain taxes will most likely not be discharged.
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While doing independent research about bankruptcy can be an excellent way for you to begin understanding the process, it is always important to be wary of the information you collect. Myths and incorrect advice can be disastrous when followed, and it is always important to remember that the particularities of your financial situation hold great bearing on your options and on how your bankruptcy will be conducted. Working with an experienced attorney from the David McCormick Law Group can ensure that you have the knowledgeable legal advice and personal focus to reduce your risk of making mistakes and to bring your case to the most favorable and swift resolution possible. To speak with an attorney from our firm or to set up a free case evaluation, contact us today.