If you have considered filing for
bankruptcy, you may have found it difficult to separate the facts from the widely
popularized misconceptions. For this reason, the
Michigan bankruptcy lawyer at Hensel Law Office, PLLC encourages you to seek out the truth about
this valuable debt relief process. While the most effective way to do
so would be to discuss your case with the knowledgeable legal team at
our firm, we have also provided this helpful resource as a way for you
to learn the truth about bankruptcy. Here, we will examine the five most common
myths about bankruptcy in the hope that you will be able to more accurately discern whether or
not this financial solution is right for you.
I will lose everything if I file for bankruptcy
Perhaps the most common misconception about bankruptcy, particularly
Chapter 7 bankruptcy, is that you will lose everything in the process. Since you
would be required to liquidate certain assets, most people assume that
they would be left with nothing. This is simply untrue. Federal and state
property exemption laws will protect a significant portion of your property, so most debtors are
afforded the opportunity to keep their home, car, personal belongings
and insurance benefits.
#2: My credit score will be permanently damaged
Another common myth about bankruptcy is that your credit score will be
permanently damaged. While it is true that it will take a toll on your
credit—as the bankruptcy could appear on your credit report for
up to 10 years—it is important to understand that you will not suffer
indefinitely. By taking proactive measures to
rebuild your credit after completing the bankruptcy process, you can expect your score to
rebound in a matter of years. How long it takes will ultimately be up to you.
#3: Bankruptcy will eliminate all of my debts
While filing for bankruptcy is a practical way to eliminate unmanageable
amounts of debt, it is important to understand that not all debt is dischargeable.
For this reason, you should not turn to bankruptcy as a "cure-all."
Rather, it should be used to move past a dire financial situation by wiping
out things like credit card debt, medical debt or business debt—as
these are usually at the root of a consumer's financial struggles.
To find out what type of debt would be exempt,
#4: No one can file for bankruptcy twice
You may be surprised to hear that no one would be prohibited from filing
for bankruptcy a second time. Since there is no federal law in places
that restricts the amount of times, or how often, a debtor can file for
bankruptcy, anyone could choose to file again. It is important to understand
that the bankruptcy court would be prohibited from discharging your debt
until a certain period of time has elapsed, however, so it is important
to take this into consideration. Learn more about these limitations by
#5: Everyone is eligible to file for Chapter 7 bankruptcy
Although anyone can file a
Chapter 13 bankruptcy, it is important to understand that federal laws limit the
amount of people that are eligible to file under Chapter 7. In order to
qualify, you must be able to show that you do not have enough disposable
income left over each month to repay creditors. This determination will
be made by taking a
means test. If you do not "pass," per se, you would still have the opportunity
to file under Chapter 13—which is a more gradual debt relief process.