Many people believe that if they simply file for bankruptcy then all of their troubles will be over. Individuals sometimes mistakenly believe this because there are myths surrounding bankruptcy that are not 100% accurate. We will discuss some of the common ones below.
The first misconception is that bankruptcy will rid you of all of your debt. This is incorrect. There are certain debts that can not be done away with, even if you file for bankruptcy. They include alimony, child support, student loans and taxes. Therefore, if most your debt consists of these types of items, then a bankruptcy really won’t be of much help to you.
Many people also believe that bankruptcy will give them a clean slate. While it may help you get rid of your current debt, you will still carry around the stigma of bankruptcy on your credit report for a period of 7-10 years. So while you may not have debt, your slate isn't totally clean because future employers and creditors will take a look at your credit application and they will see that you have filed for bankruptcy. If you are able to get a loan, then you will be charged higher interest rates.
The belief that bankruptcy is easy to file is another myth. The process isn’t easy and it typically requires anywhere between a few months to a few years. You will have to appear in court and depending on what type of bankruptcy you file, this will determine how in-depth the bankruptcy is. A Chapter 13 bankruptcy may take up to five years, while a Chapter 7 may take only three or four months. Whichever way you choose to file, you will have to work with an attorney and this will cost you money, time and effort.
The notion that bankruptcy is cheap is also untrue. While bankruptcy can wipe out your debt, if you file a Chapter 7 bankruptcy, you will have to liquidate your assets. This means that you have to give back your home and you will lose the equity in your home. Depending on what type of assets you have in your home, you may have to sell those to pay back your creditors. So if you have a lot of expensive things and/or a lot of equity in your home, then you stand to lose a lot. This isn’t cheap because you will have to start over and this will cost you money to do so and because you won’t be able to receive loans at affordable rates, replacing these things can not be done easily or cheaply.
These are just a few reasons why you should avoid bankruptcy as well as various myths that surround the process. Many people mistakenly believe that bankruptcy is cheaper and easier then it actually is. Be sure to consider these things before you file for bankruptcy and try to avoid bankruptcy at all cost.