Some people incorrectly view bankruptcy as financially irresponsible, hard to recover from or the perfect way to get rid of all types of debt.
Most Florida residents have heard of bankruptcy. In fact, for every 100,000 state residents, there are 347 personal filings, according to the World Atlas. This awareness, however, rarely means a person completely understands what this type of liquidation entails. Most people, for example, do not know the difference between a Chapter 7 and a Chapter 13. It is a complicated system made even more complicated thanks to the common misconceptions people have about the process.
Only for financially irresponsible people
For many people, bankruptcy is a last-ditch effort pursued after all other avenues have been exhausted. The process has become taboo, and many people view it as a failing. Many Americans would rather be straddled with crushing amounts of debt than take this path that is perceived as financially irresponsible.
Realistically, bankruptcy is a financial tool that helps people regain control over their lives. When financial obligations account for over half of a person's earnings, it may be a good idea to learn more about the options this tool provides. High amounts of debt can be accumulated by even the most financially savvy people. For example, long hospital stays can lead to the need for relief from debt as much as reckless spending. In other words, even a financially responsible person might benefit from filing for bankruptcy.
Almost impossible to recover from
Other people think an inability to pay debts absolutely ruins a person's financial future, and leads to the loss of most personal assets. After filing, it is impossible to get loans or open new credit cards. This process also leads to low credit scores that could take years to rebuild.
In truth, there are going to be some financial repercussions to filing for bankruptcy, but people bounce back quickly. For example, credit scores can start improving within a year of a bankruptcy being finalized, and most people are able to keep the majority of their personal assets, such as houses and cars.
Perfect way to start fresh
Not all misconceptions show bankruptcy in a bad light. Some people view it as the perfect way to shed all of their financial obligations and start fresh. Others think they can build up loads of credit card debt right before filing.
However, not all financial commitments will be forgiven by either a Chapter 7 or 13. Most commonly, credit card bills, student loans and medical bills can be forgiven. Some debt stays even after filing, such as the following:
- Alimony payments
- Child support
- Fraudulent debt
- Student loans
While a bankruptcy may help reduce the money owed, it does not wipe the slate clean in all cases.
Many Floridians misunderstand exactly what filing for bankruptcy can do for them. Whenever anyone is considering taking this financial step, it may be a good idea to work with a knowledgeable attorney throughout the entire process.