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Five of the Most Common Myths about Bankruptcy

Five of the Most Common Myths about Bankruptcy

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.

#1: 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.

#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.

#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.

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