Filing for bankruptcy is a smart option for those experiencing significant financial hardship. Unfortunately, due to the countless myths out there about bankruptcy, you may be confused about what it can and can’t do.
Knowing the truth about common bankruptcy myths will help you know if this is a smart financial move for your situation.
Myth 1: Only financially irresponsible people file for bankruptcy
Financial irresponsibility may lead to filing for bankruptcy in some situations, but the truth is many factors can lead to this decision. Divorce, emergency medical care, job loss, and similar factors can result in Americans who have always paid their bills and been responsible with their money filing for bankruptcy.
Myth 2: Filing for bankruptcy will eliminate all your past debts
Most people file for bankruptcy with hopes of a fresh financial start. However, it won’t eliminate all types of debt. For example, bankruptcy doesn’t eliminate alimony or child support payments you owe. Other debts may not be eliminated by filing bankruptcy, including student loan debts (with some exceptions) and some tax debts.
Myth 3: Filing for bankruptcy will ruin your credit forever
If you file for bankruptcy, it will remain on your credit report for up to 10 years (depending on what type you file). However, its impact on your credit score diminishes as time passes, even before it is no longer recorded on your credit report.
Understanding the truth about bankruptcy will help you know if this is a smart move for your financial situation. Working with professionals who understand bankruptcy’s impact and can answer your questions will help, too.