Filing Chapter 7 or Chapter 13 bankruptcy may not seem simple or attractive. The entire process of a successful bankruptcy discharge may entangle you into a complex array of paperwork before you could claim to be debt free.

So, here are 5 bankruptcy myths that have been debunked to make understanding of bankruptcy a lot easier.

Myth 1: Debt repayment is better than bankruptcy

Myth-busting facts:

Filing bankruptcy doesn’t always mean that you’ve played truant with your creditors’ money. Rather, it could be the next best thing in your life that grants you with a fresh opportunity to start life afresh.

It could be one of the key financial decisions you’ll ever make.

Make sure that you understand that bankruptcy isn’t one-size-fits-all solution to every debt problem you can think of. It’s best to work with an attorney if you’re planning to file bankruptcy.

Though bankruptcy can hurt your credit score, yet the relief from stress and seeing your debt problems gone forever outweighs the damage it causes to your credit.

For instance, if your total outstanding debts are more than half of your annual pay, and there’s no way you could pay those debts off in the next 5 years, then bankruptcy could be your calling.

Check-out: FTC Facts and Basics of Bankruptcy

Myth 2: Bankruptcy doesn’t provide relief from back taxes

Myth-busting facts:

Though it’s true, yet you can bet on tax bankruptcy to protect you from the ire of the Internal Revenue Service (IRS).

Myth 3:Married couples will have to file bankruptcy jointly

Myth-busting facts:

This ain’t true. If married people owe the debt in their name, their spouses aren’t liable for the same. But, it’s necessary to file bankruptcy in case of jointly-owed debts. Or else, creditors will come after the spouse for loan repayments who hasn’t filed bankruptcy.

Myth 4: Bankruptcy filing reveals personal shortcomings

Myth-busting facts:

Bankruptcy is still considered a taboo amongst the masses that shows the debtor as a failure with a distinct flaw in his or her character.

The reality is bankruptcy is a debt solution which every other person takes advantage of at some point or another.

Around 57% bankruptcies filed in 2009 were due to sky-rocketing medical bills. In over a decade, medical expenses have grown 7 times faster than wages. As a result, a lot of bankruptcies are filed because of low wages instead of lack of proper financial management.

Bankruptcy is a tool to take control of your finances and it’s worth every penny to pursue.

Myth 5: Bankruptcy robs financial freedom

Myth-busting facts:

Post a bankruptcy discharge, you may have limited access to a fresh line of credit or pay higher than usual interest on loans for 7 to 10 years until it’s dropped off your credit report.

But, your credit score will start improving a short while after earning a discharge.

Moreover, you can follow some credit repair steps after bankruptcy to rebuild your credit score.

For instance, you can use secured credit cards to establish a good credit history. It’d be tough during the initial stages, but if you choose the right financial tools, then that will take you places and save your financial life from further disasters.

Read: Bankruptcy: The final hope for the debt-distressed

Myth 6: Bankruptcy cancels all the debts

Myth-busting facts:

Most of your debts could be forgiven under Chapter 7 and Chapter 13 bankruptcy, but not all. There are certain exceptions where bankruptcy won’t cancel debts that you’re personally liable for.

Debts that aren’t discharged under bankruptcy are recent tax debt, child support or alimony, and debts that have been incurred due to your own fraudulent activities.

Your bankruptcy attorney will help you understand which debts will be affected. However, you can have your personal loans, credit card debt, medical bills, and others discharged under bankruptcy. Talk to your attorney regarding what debt is dischargeable and what isn’t under bankruptcy.

Myth 7: I can use my credit cards to the fullest, get into bad debt, and file bankruptcy to avoid paying a dime

Myth-busting facts:

This kind of act is referred to as fraud. Bankruptcy judges scorn at people who commit such crimes and punish such people severely who try to outsmart the legal system of the country.

Myth 8: You lose all in bankruptcy

Myth-busting facts:

In reality, you’re likely to keep a lot of your possessions.

You can keep a lot of your assets after a bankruptcy discharge.

Most of the Chapter 7 bankruptcy cases are no-asset cases. As a debtor, you can protect some of your basic assets citing exemptions that are crucial for daily living.

However, items that can be exempted differ from state to state.

If you own a Rolls Royce, then that will be auctioned to pay off your creditors.

Under Chapter 13 bankruptcy, you can retain all of your assets, but their value will be counted in your court-approved debt repayment plan.

Myth 9: Filing bankruptcy is an uphill task

Myth-busting facts:

It isn’t. To successfully get a bankruptcy discharge, you may not even require an attorney as you can do the documentation by yourself. Still, having represented by an attorney is a better option than without one.

See: Frequently Asked Questions about Bankruptcy

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