Bankruptcy is a major, financial altering decision. Because of the legal and credit ramifications, you need to know everything there is to know about it before making a decision. Unfortunately, many myths about bankruptcy circulate. Here are the top five myths about bankruptcy:
1. You lose everything in bankruptcy.
You will not be forced to sell all your assets when you file. You can keep your home, your car, your clothing, and your belongings. Depending on the state, you can even keep your retirement accounts. According to the law, certain assets are exempt when you file. The exact assets you can keep depends on the state you live in, but you can be rest assured you won't lose it all.
2. Bankruptcy ruins your credit forever.
Bankruptcy doesn't ruin your credit for the rest of your life. When you file, you can expect to see credit card offers anywhere from six to twelve months afterward. The credit card offers won't be great, but they can help you rebuild your credit. Over the years, and especially as you make payments on time, your credit will improve. In fact, bankruptcy will completely drop off your credit report after seven to ten years.
3. You have to meet certain conditions in order to file bankruptcy.
This is a common myth. You don't have to be behind on your payments in order to file. Even if you've never been late, you are still eligible for bankruptcy. You also don't need to have a certain amount or type of debt. Conditions determine what type of bankruptcy you are eligible for, not whether you can file at all. If you are low income, you can qualify for Chapter 7. People with high income can file Chapter 13.
4. The only type of debt you can discharge are credit cards.
Bankruptcy isn't just for people with a lot of credit card debt. Anyone with burdensome medical debt, overdue utility bills, or even back taxes can file. Some of the types of debt that cannot be discharged include student loans, child support, or debt obtained through fraud. Note that some debts that can't be discharged through Chapter 7 can be under Chapter 13.
5. Bankruptcy affects employment.
This is one of the most harmful myths about bankruptcy. If you file, your current employer can't fire you. Federal law protects employees from this type of action. Also, bankruptcy will not harm your future employment opportunities. Unless you apply for a federal job with a high security clearance, employers can't use your bankruptcy to make hiring decisions about you.
These are the top five myths about bankruptcy. Now that you know fact from myth, you can make an informed decision about whether filing is for you.