Bankruptcy is a word that can make anyone cringe. Often, there’s a cloud of myths and misconceptions adding to the anxiety of those grappling with financial woes. In this article, we’ll dispel some frequent fallacies about bankruptcy, aiming to clear the fog and provide clarity.
So, if your finances have you feeling swamped, continue reading to get a lucid picture of what bankruptcy truly means.
Myth: Bankruptcy Means Losing Everything
Fact: While bankruptcy involves selling some of your assets to repay creditors, you won’t lose everything.
- As a leading Phoenix bankruptcy attorney will confirm, bankruptcy laws aim to strike a balance between your need for a fresh start and the rights of your creditors.
- You can typically keep essential assets like your home, car, and basic household items.
- The official receiver will evaluate your assets and decide what needs to be sold to settle your debts.
Myth: Bankruptcy Is a Sign of Personal Failure
Face: Bankruptcy is a legal mechanism aimed at offering a clean financial slate.
- Various unforeseen circumstances, like health issues, unemployment, or economic setbacks, can push someone into financial strain.
- Bankruptcy represents a proactive measure to tackle insurmountable debt, not a sign of defeat.
Myth: All Debts Are Discharged in Bankruptcy
Fact: Not all debts can be wiped out through bankruptcy.
- Some obligations, including student loans, legal penalties, and child support dues, generally remain intact even after bankruptcy.
- Secured debts like mortgages and car loans may require you to surrender the collateral or continue making payments.
- Bankruptcy primarily targets unsecured debts like credit card debt, personal loans, and medical bills.
Myth: Everyone Will Know You’ve Gone Bankrupt
Fact: Bankruptcy is a matter of public record, but it doesn’t mean everyone will find out.
- While your bankruptcy will be recorded in the Individual Insolvency Register, most people won’t check it regularly.
- Bankruptcy listings in local newspapers are rare, and online databases are not widely accessed by the public.
Myth: Bankruptcy Ruins Your Credit Forever
Fact: Bankruptcy does have an impact on your credit, but it’s not permanent.
- Bankruptcy remains on your credit report for six years, making it challenging to get credit during that time.
- Over time, your credit score can improve as you demonstrate responsible financial behavior.
- Some lenders may offer credit to individuals with a bankruptcy history, but interest rates may be higher.
Myth: You Can’t Own Anything After Bankruptcy
Fact: You can still own assets after bankruptcy.
You’re allowed to keep certain essential assets and personal belongings.
You can acquire new assets after bankruptcy, but any windfall income, like lottery winnings, may be used to pay your creditors.
Myth: Filing for Bankruptcy Is Complicated and Expensive
Fact: While bankruptcy can be complex, you don’t need a lawyer, and it doesn’t have to be costly.
- You can file for bankruptcy yourself, known as “DIY bankruptcy,” by paying a fee to the Insolvency Service.
- Seeking professional advice can be helpful, but it’s not mandatory.
- Some people may qualify for fee exemptions if they have limited income and assets.
Myth: You Can Hide Assets to Protect Them from Bankruptcy
Fact: Hiding assets to avoid bankruptcy is illegal and can result in severe consequences.
- Bankruptcy trustees are skilled at identifying hidden assets, and you’re legally obligated to disclose all your assets.
- If you’re found to have concealed assets, your bankruptcy can be extended, or you may face criminal charges.
Myth: Bankruptcy Is the Only Option for Debt Relief
Fact: Bankruptcy is one option, but there are alternatives.
- Debt management plans, individual voluntary arrangements (IVAs), and debt consolidation are viable alternatives to bankruptcy.
- Consider every available avenue and consult with experts to find the ideal resolution tailored to your unique circumstances.
Myth: Bankruptcy Is a Quick Fix
Fact: Bankruptcy is a journey, not an immediate remedy.
- The duration of bankruptcy can vary, sometimes extending beyond a year.
- This process encompasses evaluations, legal hearings, and potentially liquidating assets, all of which require time.
- A bankruptcy record remains on your credit report for six years.
Myth: Bankruptcy Erases All Financial Responsibilities
Fact: Bankruptcy doesn’t exempt you from all financial responsibilities.
- You may still be liable for certain debts, such as secured loans or debts incurred after the bankruptcy filing.
- Child support, spousal maintenance, and court fines remain your responsibility.
Myth: You Can’t Rebuild Your Credit After Bankruptcy
Fact: You can rebuild your credit after bankruptcy with patience and responsible financial management.
- Start by budgeting, saving, and establishing an emergency fund.
- Apply for a secured credit card or credit-builder loan to demonstrate responsible credit use.
- Make on-time payments and avoid accruing more debt.
The thought of bankruptcy can be daunting, but it’s crucial to separate the hearsay from the truth to make educated decisions!