The general public’s misconception about the processes and procedures behind filing for bankruptcy are widespread. To most consumers, the term “bankruptcy” is one that has little meaning beyond the fact that it is usually seen alongside big trouble, whether it be in the news or in everyday life. This explains why the general reaction to the idea of filing for bankruptcy is essentially twofold, often consisting of confusion and fear.
The importance of addressing these misconceptions about the process of filing for bankruptcy is important. In fact, it is even more important when you are in the midst of questioning whether filing for bankruptcy is the best option for you. Today, we’re addressing some of the most common myths revolving around bankruptcy law and procedure.
- I Will Lose Everything if I File for Bankruptcy
False. It is commonly believed that filing for bankruptcy means you will lose everything you own, including your car, your home, and any other belongings of personal and utilitarian value. This, however, simply isn’t true in most cases.
While it depends on how much you owe, what type of bankruptcy you file, and the nature of your personal belongings, the law provides a safety net to ensure that your life doesn’t fall apart when you file for bankruptcy. Colorado law, for example, serves to exempt certain types of property from repossession, such as your home and your car, depending on your income and your current situation.
In the worst-case scenario, however, it is indeed possible that you may have to give up some of your more valuable personal belongings in order to comply with bankruptcy orders. Always speak to a bankruptcy professional about what your rights are when it comes to your property in bankruptcy.
- Filing for Bankruptcy Will Ruin my Chances of Ever Having Good Credit
False. While bankruptcy certainly isn’t the best thing for your credit score, there are plenty of people who are able to obtain credit cards and build their credit back up after a bankruptcy. While credit cards and loans may not come at ideal interest rates, starting small and rebuilding your credit is definitely possible after you discharge your debts.
- I Can’t File for Bankruptcy Because I Have a Job
False. The simple truth is that unexpected events are bound to occur, even to those who have a steady income. Many families who file for bankruptcy are also working full time. For those, there are certain bankruptcy filing options available to those who have jobs but are still struggling to meet payments– for example, Chapter 13 bankruptcies are ideal for those individuals who have an income but are considering filing for bankruptcy.
- Debt such as Medical Bills and Taxes Can’t be Relieved Through Bankruptcy
False. There is plenty of confusion as to what debts bankruptcy will or won’t discharge. The truth of the matter is that bankruptcy does not only discharge debt that is strictly unsecured, such as credit card debts and loans.
Medical bills are considered unsecured debts for the purpose of filing for bankruptcy and are thereby, in most cases, dischargeable. Certain taxes such as income tax, sales tax, unemployment overpayments, and more are dischargeable in specific situations.
- If I File for Bankruptcy, I’ll Have to Eventually Pay Back my Debts Regardless
False. While there are costs to bankruptcy, such as attorneys’ fees and emotional stress, the benefit is intended to be financial relief. Everyone’s situation is distinct and the results of a bankruptcy will always vary, but the idea of a Chapter 7 bankruptcy is to try and eliminate debts completely.
While an individual filing a Chapter 13 bankruptcy is likely to have to pay some of their debt back, creditors are often willing to work with you to ensure that you can pay back in small amounts over a longer period of time.
- Filing for Bankruptcy is a Sign of Personal Failure
False. There is often a heavy burden that comes with not being able to pay back your creditors. Regardless of your circumstances, it is important to remember that bankruptcy is available for a very specific (and good) reason– to help those who need it.
If you still have questions about some of the more prevalent points of confusion regarding the process, you’re not alone. Contact our Colorado bankruptcy specialists today to get the facts about filing for bankruptcy.
Photo by Michał Parzuchowski on Unsplash