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What are some misconceptions about bankruptcy?

On Behalf of | Jul 10, 2020 | Firm News

Michigan residents like you may need some extra financial help from time to time. In dire cases, there are options available to you. Bankruptcy is one of these options. 

But bankruptcy also has a strong stigma surrounding it. Because of this stigma, rumors often flourish even if unfounded. It is important to separate the lies from the truth. This way you can understand what bankruptcy is and what it does for people. 

Do you lose everything? 

Nerd Wallet dispels common myths and misconceptions about filing for bankruptcy. The first myth is that you will lose everything if you file. This is not true. If you file for Chapter 13, this is not a concern at all. Chapter 13 is a repayment plan that does not involve liquidation of assets. But even for Chapter 7, many people do not have their assets liquidated. This is because you can carve out exemptions for things “necessary for daily life”. Your house and car often fall under this category. Anything that does not fit is often of no interest to creditors anyway. 

Is your financial future at risk? 

The next myth is that filing for bankruptcy ruins your financial future. It is true that bankruptcies stay on your record for years. This can mess with your credit score, which can cause you hardships in other areas of life. You end up with limited credit access and higher interest rates. This can last up to a decade. But your credit score itself may actually have a quick rebound. 

Finally, shake the myth that personal bankruptcy is a personal failing. No one can predict every up and down of life. Tools like bankruptcy are there to help you. There is no shame in using them.