What does “going bankrupt” mean to you? For many people, this phrase suggests defeat, or a kind of financial failure.
Due to this negative stereotype, you may be worried about the consequences of bankruptcy. However, you might be surprised to learn that bankruptcy—when filed with professional guidance—is less about failure and more about a fresh start.
Let’s dig deeper by debunking the top 8 myths about bankruptcy.
1. Bankruptcy Means Losing Everything You Own.
This couldn’t be further from the truth. Chapter 7 bankruptcy does involve a liquidation process, in which the bankruptcy trustee may sell certain properties to repay creditors, but most Chapter 7 filers can use state or federal exemptions to shield everything they own. And Chapter 13, in fact, does not involve a liquidation process at all.
Because of this myth, some people sell their assets and drain their accounts before filing bankruptcy—even though bankruptcy would not have jeopardized those funds and properties.
2. Bankruptcy Will Permanently Ruin Your Credit.
While bankruptcy will stay on your credit report for either 7 or 10 years (for Chapter 13 or Chapter 7, respectively), the effect that it has on your score will diminish over time.
Furthermore, many people who file bankruptcy already have poor credit because of a high utilization rate, missed payments, and other issues. Bankruptcy wipes out debt, which means your utilization rate will immediately decrease. You will then have the clean slate you need to rebuild.
3. Bankruptcy Won’t Stop Debt Collectors.
If debt collectors continue to contact you once you’ve filed bankruptcy, they are actually breaking the law. This is because the bankruptcy court issues an automatic stay as soon as you file, which prohibits all forms of debt collection for the duration of your case. A creditor, lender, or debt collector will need to obtain explicit permission from the court if they want to continue pursuing what you owe, and bankruptcy courts frequently deny these requests.
4. Everyone Will Find Out About Your Bankruptcy.
As a court proceeding, bankruptcy goes on public record. However, this does not mean your friends, family, employer, and colleagues will receive a notice of your bankruptcy. They would need to actively search through the public record before finding your information.
5. I Won’t Be Able to Get a Job After Filing Bankruptcy.
In most cases, bankruptcy won’t affect your current or future employment. Although private employers are technically allowed to run a credit check and make hiring decisions based on the information they find, many employers look upon bankruptcy more positively than overwhelming levels of debt and related issues. Bankruptcy signifies a level of proactiveness and a willingness to confront adversity head-on.
Unlike private employers, government agencies are legally prohibited from making hiring decisions based on an applicant’s bankruptcy filing(s).
6. If You’re Married, Your Spouse Will Have to File, Too.
Married couples MAY file jointly, but this isn’t mandatory. One spouse may choose to file on their own.
Some couples will benefit from filing a joint petition, while others will benefit more from just one spouse filing. The right decision depends on state property laws, the assets and liabilities of each spouse, and several other factors.
7. Bankruptcy Is a Long, Drawn-Out Process.
With skilled guidance from an attorney, bankruptcy can be surprisingly straightforward. Each type of bankruptcy has a different timeline and set of requirements, but your attorney can guide you through the process from beginning to end, helping you understand what to expect at every turn.
8. Filing Bankruptcy Is Irresponsible and Immoral.
Life happens. Families experience medical emergencies, and the national economy experiences sudden downturns. Pandemics wreak havoc all across the globe, and businesses lay off thousands of workers. Even without these extreme events, we are human, and we aren’t always good with our money.
For hundreds—if not thousands—of years, bankruptcy has existed to provide the honest debtor with a fresh start. If you file bankruptcy, you are utilizing a tool that was designed for your exact situation. There is no shame in bankruptcy, and there is no reason to put it off if it is right for you.
Get the Personalized Information You Need
Contrary to what the phrase “going bankrupt” implies, bankruptcy is not a passive state of being. Bankruptcy is a powerful tool that hundreds of thousands of Americans use each year to achieve lasting freedom from debt—and Nguyen Law Group is here to help you experience that same freedom.
When you bring your case to our firm, we can answer your questions and address your concerns during your free initial consultation. Once we have your information, we can determine whether bankruptcy is right for you and, if so, get to work on your petition.