Filing for bankruptcy isn’t an easy decision, especially if you’re trying to decide whether it’s the best option for you based on your circumstances. Every situation is different. Before making a decision, be informed. A number of prevalent bankruptcy myths are scary, but inaccurate. Understanding the process and knowing the difference between fact and fiction is important.
Five common bankruptcy myths
Myth #1: When you file for bankruptcy, you lose everything you have.
While types of bankruptcy and their regulations differ from state to state, some assets and property are protected when you file for bankruptcy. Protections in some states safeguard your home, money you’ve saved in a qualified retirement plan, and personal home goods and clothing. Up to certain values, your car might also be protected. In general, a person who is paying off a mortgage or car loan can keep their home or vehicle as long as they continue to make the required payments.
Myth #2: If I file for bankruptcy, I’ll never be considered for credit in the future.
Just because you file for bankruptcy doesn’t mean that you’ll never be able to open a line of credit in the future. While not all lenders might be willing to offer you credit, it’s not impossible. Those filing for bankruptcy must be responsible and judicious about opening new lines of credit for a time. As an example, if you need a vehicle, you will be able to purchase one, though you may be relegated to dealing with subprime lenders and paying higher interest rates.
Myth #3: A bankruptcy doesn’t discharge medical bills.
Medical bills are considered an unsecured contract debt. Like a personal loan or credit card debt, medical bills are dischargeable in a bankruptcy. A bankruptcy “discharge” is defined in simplistic terms as debt relief. As a result, if your bankruptcy is successful, you don’t have any obligation to pay back medical bills that were not paid for by health insurance coverage before you filed your bankruptcy petition.
According to federal law, medical debts are defined as a “non-priority” unsecured debt (in a Chapter 7 bankruptcy). For many carrying the burden of overwhelming medical expenses and debt, a Chapter 7 bankruptcy filing is a means to relief.
Myth #4: Bankruptcy will take care of all my debts.
Filing for bankruptcy does not eliminate all your debts. While many debts are discharged, including credit card balances, medical debt, and personal loans, others will not. For example, it is very difficult to discharge student loan debt, as well as certain income tax debt. Obligations such as past-due alimony or child support will not be discharged. In some cases, filing for bankruptcy won’t discharge you from obligations to repay based on certain contracts or agreements that you might have signed. For this reason, it’s important to consult a bankruptcy lawyer to ensure the facts in regard to your case.
Myth #5: If I file for bankruptcy, I’ll lose my job.
Every case is different. Most employers are not too concerned about a bankruptcy. However, there are some exceptions. For example, a bankruptcy could negatively impact eligibility for some positions which require a person to qualify for a bond, license, or other governmental credentials. Regardless, in most cases, the only people who may be aware of your filing for bankruptcy are creditors. If you feel that bankruptcy could be an issue with your employment, you are highly encouraged to speak to an attorney first before filing for bankruptcy. Do be aware that some local newspapers print the names of individuals who have filed for bankruptcy, due to the fact that such proceedings are public record.
For more information about bankruptcy and what it involves call our office today at 817-335-4003.