Myth Buster:Unraveling the Fictional "Horrors" of Bankruptcy
Considering whether to file for either Chapter 7 or Chapter 13 bankruptcy can be a difficult decision. Filing for bankruptcy does have financial and emotional consequences, and can impact your future. But most people today have misconceptions of what the financial impact can be and what happens when you file for bankruptcy. Learn more and check out this interactive visual guide to the myths and fictional "Horrors" of Bankruptcy.
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Myth Buster: Unraveling the Fictional “Horrors” of Bankruptcy
When many people think of bankruptcy, thoughts begin forming about the horrors of this financial hardship. However, with
1.4 million U.S. bankruptcy filings in 2011, consumers are realizing this is not such a taboo subject after all.
Here is a look at the most common bankruptcy myths and why you shouldn’t believe all the horrors.
Myth 1: Bankruptcy Punishes People With Financial Missteps
- Bankruptcy is not a punishment
- It is a law with the purpose of helping people who can no longer pay debt
- It is designed to help the consumer pay off debt through a debt repayment plan or, sometimes, a liquidation of property
- It teaches financial management through mandatory debt-education classes
Myth 2: You Will Lose Your Home and Car
- In some cases, bankruptcy can save cars from repossession and homes from foreclosure.
- Many states have exemptions that may allow consumers filing for bankruptcy to keep their home, car and other essentials
they need for work.
Myth 3: Bankruptcy Filers Can Never Get Credit Again
- You can get credit after filing bankruptcy
- In some cases, if a future financial crisis occurs, an existing bankruptcy plan may be able to be amended to accommodate
Myth 4: You Will Never be Free of Bill Collectors
- The bankruptcy Automatic Stay is designed to stop the incessant calls from creditors and “past due” bills in the mail.
- Once the consumer files bankruptcy papers in court, creditors are prohibited from contacting the person directly about
the debts included in their bankruptcy filing.
- All collectors must go through the bankruptcy court.
Myth 5: Government Services and Lenders Will Discriminate Against You
- Government agencies generally may not discriminate based on debts discharged or paid off in bankruptcy proceedings.
- Same can be said for utilities companies and housing authorities.
Myth 6: You Don’t Have Enough Debt for Bankruptcy
- There is no debt threshold requirement when one files for Chapter 7 bankruptcy protection.
- Even if you’re not in debt for tens of thousands of dollars, you may still be able to file bankruptcy.
The term bankruptcy is fraught with negative connotations, mostly stemming from the fictional myths listed above. In reality, bankruptcy laws are in place to protect consumers. If you don’t have the funds to cover your debts, consider talking with a bankruptcy attorney about your legal options.