The vast majority of Americans are under a certain degree of financial stress and pressure at any given time. For many people, our liabilities outweigh our assets by so much that filing for bankruptcy seems like the only solution to manage out of control debt. However, there are many myths and misconceptions about bankruptcy.
What are some common bankruptcy myths?
The purpose of this article is to debunk and clarify some of those common misconceptions.
Myth #1: Filing for Bankruptcy Ruins Your Credit Indefinitely
It is a commonly held belief that an individual who filed for personal bankruptcy will do irreversible damage to his or her credit. This is not the case; initially, an individual’s credit score will be weakened upon filing for bankruptcy. However, after several years, a person’s credit can be restored through the typical methods of maintaining and building good credit such as making payments on time, earning a regular income and so forth.
Myth #2: Bankruptcy Affects Everyone Financially Equally
A second myth is that filing for bankruptcy does the same damage to each person who files. In other words, whether you owe $10,000 or $500,000 to various creditors, your score will be just as bad. In reality, the amount owed to each creditor and the outstanding balance on each account is evaluated on a case by case basis. A person with relatively little debt’s credit score will be more easily recovered than someone with a huge debt versus asset ratio.
Myth #3: Bankruptcy Filings Disappear from Your Credit Report
When your bankruptcy case is eventually closed, the affected accounts do not automatically disappear from your credit report. Rather, they will typically appear for up to 10 years after your bankruptcy case has been dismissed. That said, as previously mentioned, your credit score can still be improved and reach the good to the excellent range during the time subsequent to the release of your case.
Myth #4: Bankruptcy Is Your Last Resort
Another myth is that it is better to pay off all your debts and outstanding balances and avoid filing for bankruptcy at all costs. While the urge to liquidate one’s funds in order to pay off outstanding debts may offer some peace of mind, it can actually hurt you more financially to expend all of your funds and reduce your net worth to virtually nothing in order to avoid filing. Bankruptcy presents a way to manage and pay back debts in a sensible manner, and, to reiterate, a person’s credit can be restored in a few years.
Struggling with debt is not easy for anyone. Clearing up some of the misconceptions of filing for personal bankruptcy will hopefully help you decide to take control of your finances. An experienced and knowledgeable bankruptcy attorney can help you navigate the process with ease. Hines Law Office is a full-service bankruptcy firm specializing in Chapter 7 and Chapter 13 filings. You will find the bankruptcy attorneys at our legal practice compassionate and skilled at understanding the realities common to debt relief. We represent clients throughout Massachusetts. Call for a Free Case Evaluation!