Introduction

Bankruptcy can be an honest and legal way to achieve debt relief when your debt has become unaffordable due to financial hardship. There are many myths that people believe about bankruptcy, so the goal of this article is to help dispel some of those myths.

1. All your debts disappear once you file for bankruptcy

Typically, filing for bankruptcy is supposed to give you a debt relief since the purpose is discharge debt. Before one file for bankruptcy, it is not uncommon to seek legal counsel to facilitate the process. Normally, a competent legal counsel will advise you on what debt your application will cover. Typically, bankruptcy applications discharge much of unsecured debt like lines of credit and credit card loans. However, the US bankruptcy code lists exceptions to debt discharged, which include student loan, fines, if you owe certain taxes and much more.

2. You will feel the impact of bankruptcy for seven to 10 years

Typically, the bankruptcy code specifies the kind of bankruptcy one should file once it is apparent the move is necessary. The length of time bankruptcy remains on your credit report depends on the type of bankruptcy you filed. If you filed for Chapter 7 bankruptcy (which is the most common), the time taken is normally ten years. However, it might take seven years to clear a bankruptcy from your credit report if you filed Chapter 13 bankruptcy. However, there are instances where you will have to answer YES to questions like “Have you ever filed bankruptcy?” for the rest of your life.

3. Bankruptcy ruins your credit permanently

It is not uncommon for one to imagine that filing for bankruptcy will destroy their credit for the rest of their life. After all, bankruptcy tells creditors that you cannot manage to meet your obligations to them. Typically, access to credit is limited during the period when one has to disclose bankruptcy status on their credit report. Therefore, you might find it difficult accessing credit for ten years if you file for Chapter 7 bankruptcy. One should easily access credit once the period elapses.

4. If you are married, both couples will file for bankruptcy

It is not uncommon for couples to have separate debt liability and which appears under their names only. In such a case, only the spouse under whose name the debt liability appears will file for bankruptcy. However, in the case that both spouses signed their name under a certain obligation to pay back debt and they cannot pay, then both of them will file for protection under Chapter 7, 9, 11, 12 or 15 bankruptcy.

5. Filing for bankruptcy is the only solution to financial problems

Before filing for bankruptcy, it is crucial first to alienate the primary need. If yours is just a case of incessant harassment by creditors, then you could consider other alternatives. There are sufficient laws at both state and federal level which protect debtors from overreaching creditors. In the case where a debt collector has turned abusive, one could turn to the Fair Debt Collection Practices Act (FDCPA) for protection. The law protects debtors with auto loans, student loans, a range of household debts, mortgage, medical bills, etc. However, you might need more protection if you have business debts.

6. Filing for bankruptcy is overly expensive

While filing for bankruptcy is not free, neither is it correct to say it is overly expensive. Typically, one will pay a fee here or there, especially if you decide to seek the services of an attorney. Usually, you will not spend more than 10% of the outstanding debt on fees while filing bankruptcy. Filing fees normally range between $310 and $335 with an additional fee charged by the trustee which seldom goes above $20. You could also choose to go without an attorney, which will greatly cut down on cost.