Most Americans don’t know much about bankruptcy – they’re limited to the knowledge they get from news stories and online gossip columns. Bankruptcy is much more common that most people realize, with over a million people filing for bankruptcy every year.
Generally, people assume that bankruptcy is meant for someone who can’t control their credit card spending. In reality, bankruptcy provides financial protection for much more than just credit card debt.
To help shed some light on bankruptcy and how it can help honest, hard working families, we’re sharing the truth about the five most common bankruptcy myths. As always, if you have any other questions, please call us for a free debt consultation – we’ll take as much time as you need to fully explain how bankruptcy works.
Bankruptcy is a magic bullet
Yes, Chapter 7 bankruptcy can completely eliminate certain debts and Chapter 13 can reduce or reorganize debts – but neither one is a magic cure-all. You might lose some property if you file Chapter 7, and while Chapter 13 allows you to keep your house, you still have to keep making your payments. You’ll have to reign in your spending habits and live a strictly modest lifestyle for several years. Bankruptcy definitely helps put you on the path to a fresh start – but it’s not a magic bullet.
Bankruptcy destroys your credit permanently
Actually, our clients are usually surprised at how quickly their mailboxes fill up with offers for new credit cards. You’ll have to start with a secured credit card, which means you’ll have to put down a deposit with the lending bank. If you make your payments on time, you’ll build up your credit and be able to switch over to a regular credit card within a year.
Bankruptcy erases all debts
Most people assume that filing for bankruptcy equals a complete discharge of debt, but in most cases, that’s not true. Child support or alimony debt cannot be discharged, for example. You’re also required to pay any fines assigned because you committed a crime. Student loans are also protected from bankruptcy discharge (although filing can usually let you “pause” payments for several years).
Money that you owe to the IRS can be discharged, but you can’t erase a tax debt for a year where you didn’t file a return.
You can spend like crazy right before filing and not have to pay it back
This can actually get you in trouble. Obviously, people have tried this in the past – but the court understands the game. If you’re planning on filing bankruptcy and you run up your credit cards just before filing, it’s considered fraud. Any debt that you run up as a result of fraud cannot be discharged when you file for bankruptcy.
If you file for bankruptcy, you’re financially irresponsible
Nothing could be further from the truth. In the vast majority of cases, our clients are hard working family types who have run into some kind of hardship that prevents them from getting out of debt. You might lose your job, go through a divorce, or have a serious medical issue… Whatever the case, an unforeseen event can easily throw the most responsible spender’s world into a tailspin – and filing for bankruptcy might be the only way out.
Don’t let the myths and misconceptions keep you from the financial peace you deserve. If you’re in the Dallas area and you’re struggling with overwhelming debt, give us a call at 214-760-7777. We’ll take as much time as you need to listen to your financial situation and explain every option available to you.