If you’re overwhelmed with debt, bankruptcy can help you achieve a fresh financial start. Yet here in New Jersey, bankruptcy is often poorly understood.
Here are five of the most common bankruptcy myths.
#1) Filing for bankruptcy makes you a failure.
People file for bankruptcy for all sorts of reasons, none of which make you a failure. Some reasons include:
- Suffering a divorce, which completely and abruptly changes your finances.
- An unavoidable illness or injury that leads to crushing medical debt.
- The failure of wages to keep up with inflation can make it hard to save for emergencies or to absorb even small financial losses.
- Predatory loans with slick marketing can make it easy for people to make financial mistakes.
- A sudden job loss can create months of havoc while looking for a new job or years of havoc if you end up underemployed.
The truth is over half of Americans can’t cover a $400 emergency. 18% have nothing in savings. Most of us are just a paycheck away from financial disaster.
Corporations don’t agonize when they file bankruptcy, so you shouldn’t agonize. Filing bankruptcy is a smart decision that allows you to reorganize and get back on your feet if something goes wrong. And if you were overly optimistic about the amount of debt you could safely absorb, bankruptcy allows you to learn from your mistakes, restructure, and do a better job moving forward.
#2) All debts are automatically discharged.
Bankruptcy can’t handle all debts. For example, most of the time, bankruptcy can’t discharge federal student loans. Bankruptcy can discharge back tax debt, but only if it’s three years old or older.
Bankruptcy never discharges the following debts:
- Spousal support
- Child support
- Restitution payments arising from criminal cases
- Judgements for DUI accidents
Even if you have these types of debts, bankruptcy might be the right move. Filing bankruptcy can help you restructure your finances to have more resources to service non-dischargeable debt.
#3) You’ll lose everything you own.
Bankruptcy exemptions allow you to protect a great deal of property. And your personal items aren’t up for grabs. No bankruptcy trustee will order anyone to go into your house to sell every stick of furniture and clothing you own.
In Chapter 7, some assets, such as houses and cars, can be sold to pay off your creditors. Many who file Chapter 7 don’t have any assets to begin with.
#4) Bankruptcy ruins your credit forever.
Most people who file for bankruptcy can get their credit back on track within two years. There are specific steps you will need to take, but it can be done.
In some cases, bankruptcy even improves your credit score.
#5) Only low-income people file for bankruptcy.
Chapter 13 bankruptcy exists for people who make a good income but struggle financially. Bankruptcy isn’t about what you make. It’s more a question of whether most of your income is devoted to servicing debt.
If it is, and you’re falling farther and farther behind each month, then it’s time to consider bankruptcy.
Bonus Myth: You don’t need a lawyer for bankruptcy.
Most DIY bankruptcy filings are unsuccessful. You need a lawyer if you want to secure your best chance of achieving a bankruptcy discharge.
Why not call our offices for a free consultation? We can help.