A Reliable Partner. An Experienced Adviser.

Photo of Ira C. Yellin

Four myths and facts about bankruptcy

On Behalf of | Jan 15, 2023 | Bankruptcy

When debt becomes too much to handle, many individuals and businesses file for bankruptcy. Though there are six types of bankruptcy, the two most common ones — which target consumers — are Chapter 7 and Chapter 13. Chapter 7 deals with asset liquidation, and Chapter 13 involves an arranged payment plan.

Due to the misconceptions surrounding bankruptcy, some people assume it’s something to be avoided. Here are four myths about bankruptcy and the facts that debunk them.

Myth 1: Filing for bankruptcy is a sign of financial irresponsibility

Fact: While some individuals find themselves in debt because they spend their money frivolously, others accumulate debt due to factors outside their control. For example, a person can experience a layoff from their job or receive a large bill for a medical procedure.

Myth 2: If I file for bankruptcy, I’ll destroy my credit forever

Fact: Indeed, bankruptcy can adversely affect your credit score. However, since it stays on your record for seven to 10 years, that gives you plenty of time to repair and increase your score.

Myth 3: Bankruptcy will make me lose all of my possessions

Fact: Many people think they’ll lose their valuables if they file for bankruptcy. Chapter 7 bankruptcy allows you to apply for exemptions to keep your vehicle, home and other important possessions.

Myth 4: I’m probably better off paying my debts myself than filing for bankruptcy

Fact: Bankruptcy could be the best decision you make, especially if your debt exceeds your yearly income. Besides, it could save you from worse scenarios like loan defaults or bank liens.

Though bankruptcy has somewhat of a stigma, it’s not as bad as people think it is once they learn the facts. If you’re considering bankruptcy, reach out for legal guidance to aid you in exploring your options.