People who have had no experience with bankruptcy are often poorly informed about what this type of debt relief can and cannot accomplish.
If you are pondering whether to file for bankruptcy protection, here are five common myths to help you separate fact from fiction.
1. Bankruptcy immediately makes you debt-free
While you can satisfy many debts through bankruptcy, you cannot eliminate certain obligations like child support, alimony or student loans.
2. Filing for bankruptcy stops debt collection attempts
Any debt discharged in bankruptcy is one you are no longer obligated to pay. However, some creditors may still try to collect. Legal action can help put a stop to such attempts.
3. Bankruptcy takes delinquent accounts off your report
This is not the case. A credit report is actually a credit history, so any delinquent accounts listed there before bankruptcy will remain until they drop off, which is usually within seven years.
4. You will not be able to get credit
You may think you cannot get credit after filing for bankruptcy, but you would be surprised by how many credit card offers will come your way. You may also be able to buy a car or even obtain a mortgage, but prepare yourself for high interest rates.
5. You will lose everything
People who are not well informed may warn that you will lose everything in bankruptcy. Keep in mind that there are exemption laws that govern what kinds of assets you can keep, such as your home, your vehicle and your retirement account.
Your next step
If you have decided to file for bankruptcy, seek legal guidance to help you understand which type best suits your circumstances. Through Chapter 7, for example, you can permanently discharge certain debts while Chapter 13 allows you to set up an affordable payment plan. Explore the options available, and take the first step in the direction of a brighter financial future.