Bankruptcy is often surrounded by myths and misconceptions that cloud people’s understanding of this legal process. It is essential to separate fact from fiction to make informed decisions about financial matters. In this article, we aim to debunk the top five most common bankruptcy myths and provide accurate information to help individuals better understand the process.
Myth 1: Bankruptcy means losing everything you own.
Fact: Bankruptcy laws include exemptions that protect certain assets from liquidation. These exemptions vary by jurisdiction but typically cover essential items such as your home, vehicle, clothing, and necessary household goods. Most individuals who file for bankruptcy can retain their essential assets while finding relief from overwhelming debt.
Myth 2: Filing for bankruptcy will ruin your credit forever.
Fact: While bankruptcy does have an impact on credit scores, it is not a permanent stain. Bankruptcies can remain on credit reports for several years, but it is possible to rebuild credit with time and responsible financial behavior. Many individuals see an improvement in their credit scores after filing for bankruptcy as they eliminate excessive debt and rebuild their financial lives.
Myth 3: Bankruptcy eliminates all types of debt.
Fact: While bankruptcy offers relief from many types of debt, certain obligations are not dischargeable. Debts such as child support, alimony, most tax debts, student loans (in most cases), and debts arising from fraudulent activities typically cannot be discharged through bankruptcy. However, bankruptcy can still provide relief by eliminating or reorganizing other forms of debt, giving individuals a fresh start.
Myth 4: Bankruptcy is only for financially irresponsible people.
Fact: Financial hardships can affect anyone, regardless of their level of responsibility. Unforeseen circumstances like medical emergencies, job loss, or divorce can quickly lead to overwhelming debt. Bankruptcy is designed to provide relief and a fresh start for individuals facing such hardships, offering an opportunity to regain financial stability.
Myth 5: You can file for bankruptcy multiple times whenever you want.
Fact: Bankruptcy laws have specific guidelines regarding the filing frequency and types of bankruptcy available to individuals. Depending on the type of bankruptcy previously filed, there are time limits before you can file again. For example, Chapter 7 bankruptcy can typically be filed every eight years, while Chapter 13 bankruptcy can be filed every two years.
Remember, bankruptcy laws can be complex, and the specific details may vary depending on your jurisdiction. It is crucial to consult with a qualified bankruptcy attorney who can provide personalized advice based on your unique circumstances. By dispelling myths and seeking accurate information, individuals can make informed decisions about their financial future and take the necessary steps toward a fresh financial start.
Brent C. Diefenderfer
Shareholder | Attorney
Brent C. Diefenderfer is a bankruptcy attorney representing clients throughout central Pennsylvania including York, Lancaster, Harrisburg and Gettysburg. Brent is certified as a Consumer Bankruptcy Specialist by the American Board of Certification and is one of only 25 attorneys in Pennsylvania to hold this designation.
Brent advises clients on implementing debt reduction strategies that are appropriate to their unique situation, including bankruptcy under Chapter 7, Chapter 13 or Chapter 11, creditor’s rights and non-bankruptcy debt reduction strategies.
Read Brent’s Bio Page in full HERE.