If you are considering bankruptcy, you need to go into it with an open mind — and open eyes. While it can give you a fresh start if you are heavily in debt, it will not work miracles.
By doing your homework, asking questions and seeking legal advice, you will know what to expect and be better prepared for bankruptcy. Here are five of the most common misconceptions about this method of resolving debt.
It will discharge all your debts
There are several kinds of debt that bankruptcy will not discharge. You must still pay your taxes, alimony and child support, if applicable. If you have a criminal conviction, you must still pay restitution.
You will lose your home
You may worry that you will lose assets, such as the family home, in order to help pay off debts. However, as part of most bankruptcy agreements, as long as you continue to make mortgage payments on time, the bank will not seize your property.
Bankruptcy ruins your credit permanently
No, bankruptcy will not ruin your credit permanently. In fact, it might surprise you how quickly you begin to receive credit card offers after bankruptcy. The first invitations will likely be for secured cards, but if you start making regular payments, you will begin to rebuild your credit. After 6 to 12 months, you can probably get a regular credit card to replace the secured version.
Bankruptcy filers are financially irresponsible
Many of the people who file for bankruptcy choose to do so because they are going through financial problems occasioned by serious circumstances: a severe illness, a divorce or the loss of employment.
You will not have to pay back money you spent just prior to bankruptcy
One of the most interesting misconceptions is that if you go on a wild spending spree just before filing for bankruptcy, you will not have to repay the money you spent. The court will frown upon this. They consider this act to be fraud.
The good news
Once you see the myths for what they are, you will be able to think about bankruptcy more clearly. Among other benefits, bankruptcy can prevent foreclosure, stop wage garnishment and put an end to creditor harassment. If you give bankruptcy a chance, you might find it beneficial in your particular circumstances.