(This is a guest post from Jack Reed. Since I know very little about bankruptcy, I asked Jack to point out some common misconceptions about the process.)
The very thought of going bankrupt gives sleepless nights to consumers facing overwhelming debt problems. The prime reason behind it is nothing but the social stigma associated with bankruptcy.
Like most big and frightening things, bankruptcy has a reputation that is glossed with a lot of myths and misconceptions. The myths have been embellished to such an extent that they have instilled in consumers a deep rooted fear of being a financial castaway.
The following are some common bankruptcy myths that greatly affect a debtor’s decision of bankruptcy filing:
1. Bankruptcy will lead to social disgrace
It is the most common misconception about bankruptcy. It is true that bankruptcy is a public legal proceeding but it also true that there are huge numbers of bankruptcy filings everyday and no one takes the pain to follow all of them diligently.
Unless you are a socially prominent person drawing a lot of media attention, the only people interested in your bankruptcy filing will be your creditors and no one else.
2. Personal bankruptcy is meant for the poor only
Another common stigma associated with bankruptcy says that personal bankruptcy is only for the poor. But the real picture is quite different.
The terrible economic downturn in the recent years has pushed numerous formerly affluent people into bankruptcy. Bankruptcy is no more a social stigma but a financial catastrophe that can hit any of us.
3. Bankruptcy will eliminate all your obligations
It is common wrong notion with which consumers file for bankruptcy. Bankruptcy will not waive off all your debts. You will still be liable for obligation such as child support and alimony, federal student loans and most taxes owed to the federal government.
4. You will lose all your assets
This is an important misconception that makes the debtors dread bankruptcy. Most of the consumers think that the state will liquidate everything they have and they will be financial impoverished forever. But, in reality the federal as well as the state governments have wide range of exemptions to protect the certain kind of assets from liquidation.
Moreover only Chapter 7 bankruptcy is liquidation bankruptcy. If you file for bankruptcy under Chapter 13, you will not have to go through liquidation proceedings.
5. Your credit worthiness will be ruined forever
It is true that bankruptcy stays on your credit report for 7 to 10 years depending upon the bankruptcy you file for. But it certainly does not mean that your credit worthiness will go for a toss forever.
Bankruptcy, in fact, paves way for you to build your finances afresh. All you need to do is take wise financial decisions post-bankruptcy and rebuild your credit worthiness.
6. Both the spouses need to file for bankruptcy
It is not necessary. Both the spouses will be required to file for bankruptcy together only if they owe the debts jointly.
7. You will have to repay your debts even after bankruptcy
This is a common misconception that creditors want you to harbor so that you feel obligated to repay your debts even after the bankruptcy procedure is over. However, in reality, you are neither legally nor morally liable for the debts that are discharged through bankruptcy.
8. Filing for bankruptcy is difficult
It is another myth that dissuades debtors from filing bankruptcy. But bankruptcy filing is not as difficult as it seems. You can even file for bankruptcy without a lawyer’s help. All you need to do is fill out the forms correctly and submit all the required documents properly.
However, it is always advised that you seek help from a lawyer while filing for bankruptcy.
9. You may exclude some creditors from your petition
This is another commonly mistaken idea. Bankruptcy will require you to include all your creditors in the petition.
10. You can’t file for bankruptcy more than once
It is completely untrue. After a successfully completing a bankruptcy case, you cannot file for bankruptcy within the next 8 years. For Chapter 13 bankruptcy you can file more often that, but you cannot undergo more than one bankruptcy case at a time.
Nevertheless, having multiple bankruptcies on your credit report is never a good idea and can harm your credit worthiness.
There is indeed nothing very pleasant about bankruptcy. But, it is definitely not as dreadful as you imagined it to be. So, if you are struggling with overwhelming debts that cannot be managed with any other debt relief option, then you can safely file for bankruptcy.
It is the most logical and favorable debt relief option that can get you out of your insurmountable obligations and help you shape you finances afresh.