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Debunking Common Bankruptcy Myths

On behalf of Powell Law Offices, P.C. on Thursday, June 26, 2014.

Many people think of bankruptcy as a credit death sentence. Thanks to some of the common myths surrounding bankruptcy, many people steer clear of it ...

Many people think of bankruptcy as a credit death sentence. Thanks to some of the common myths surrounding bankruptcy, many people steer clear of it without realizing the potential benefits it may provide for their dire financial situation. As a bankruptcy firm, we are always trying to help people gain a better understanding the bankruptcy process.

Some of the most common myths we hear people wrestling with include the following:

  • Your credit will be ruined forever: This might be one of the most popular myths about bankruptcy. While your credit will be damaged after a bankruptcy, or any spout with severe debts, you will be able to rebuild and restore it over time. Many debtors are able to pay off debts much more effectively once they file for bankruptcy, even obtaining credit cards just months after their bankruptcy discharge.
  • You could lose your job if you file: Though losing a job and filing for bankruptcy may seem to happen at the same time for some unfortunate individuals, bankruptcy is not the problem. Typically losing a job may be the reason an individual is forced to file. Federal law prohibits a government or private employer from firing or discriminating against an employee who has to file for bankruptcy. If they attempted to do this, it would be illegal.
  • You can't file for bankruptcy if you have a job: Even with a well-paying job, you could still be facing overwhelming debt. Bankruptcy law does not discriminate, which is why Chapter 13 is often called the "wage earner's" bankruptcy. Though Chapter 7 will require that you fall under a certain salary, Chapter 13 allows individuals with a consistent income to restructure their debts through bankruptcy.
  • You will have to sell all your belongings: This myth stems from Chapter 7 bankruptcy, which is also known as "liquidation bankruptcy". It's called this because you will have to liquidate or sell any non-exempt assets to pay off creditors. State laws offer extensive coverage for assets, allowing a majority of them to fall into the exempt category. You may even be able to keep your secured debts, such as your home or car if it is worked out accordingly in court. All unsecured debts are exempt.
  • Bankruptcy will solve everything: While it would be great if this myth was true, it is not. Like most things in life, there is no shortcut to dealing with debt. Bankruptcy can be an extremely helpful and beneficial tool, but it will not make all debts disappear or relieve you of any financial responsibility in the future. You will still need to work hard to build your credit back up and make sure you don't slip into a similar financial hole.

While bankruptcy is not right for every person, it can be an effective method for those dealing with overwhelming debt. If you have questions about your debt, please contact our firm today. We are here to help you determine if bankruptcy is the best option for your financial situation!