A myth is an idea or belief that is believed by many people to be true when in reality the idea or belief is false. Myths can be harmful because they are passed from person to person until people begin to believe them without question. Bankruptcy myths can be especially harmful, because those who truly need the financial relief bankruptcy provides won’t even consider it as an option.
The best way to counter bad information is to present accurate information; so below you’ll find explanations of the top three bankruptcy myths, why the myths are harmful to individuals in financial need, and the accurate information that disproves each myth.
Bankruptcy Myth Number 1: Bankruptcy is For Losers, Low-Lifes, Etc.
Unfortunately, many people still hold a negative perception about the type of person who files for bankruptcy relief. This bankruptcy myth may be one of the most damaging of all bankruptcy myths because it deters some people from getting the help that they need to resolve their financial problems.
The top five reasons people file bankruptcy are:
- Job loss or other decreases in income
- Loss of a spouse from death or divorce
- Medical emergency
- Business failure
- Poor financial decisions
As you can see, bankruptcy is NOT for losers or financially irresponsible people. In the case of Local Loan Co. v. Hunt (1934), the United States Supreme Court ruled that bankruptcy “gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.” Bankruptcy is designed to help individuals who are experiencing a financial crisis gain the fresh start they need in order to rebuild their finances for a stronger future.
Bankruptcy Myth Number 2: You Will Never Be Able To Purchase Anything Again
This bankruptcy myth is very far from true. Debtors who receive a bankruptcy discharge go on to purchase homes, cars and other assets they need and want.
During your bankruptcy case, you shouldn’t purchase any expensive assets without first consulting with your attorney. You are also prohibited from incurring debt while you are in bankruptcy. However, when your bankruptcy case is discharged, you are free to begin managing your finances through purchasing items and incurring debt responsibly.
Along these same lines, many people also believe that after bankruptcy you will never qualify for credit again. Most debtors qualify for credit in as little as one year after their discharge. You may be at a higher interest rate for a couple of years but as you continue to pay your bills on time, your credit rate will improve and your ability to finance assets will increase.
Bankruptcy Myth Number 3: Bankruptcy Should Be Your Last Resort
Filing bankruptcy is not an easy decision to make. Most individuals agonize over the decision to file a bankruptcy because they worry about what their family and friends will think, they worry about losing assets, and they worry about how a bankruptcy will affect their future. For the average debtor, the decision to file bankruptcy comes only after considering all other possibilities.
This is one of the biggest mistakes you can make – which is what makes this myth harmful. Don’t rule out bankruptcy and don’t leave it as a last resort – doing so can have a significant impact on your mental, physical and financial health.
It’s not that bankruptcy is always the answer, but approaching your debt as though bankruptcy is a last resort can be detrimental to your health and the speed and ability with which you can become debt free. And, in many cases, overwhelming debt situations are more manageable within bankruptcy and can lead to a fresh start much quicker than other debt options.
Each debt situation is unique, and the right bankruptcy attorney will offer insight and make recommendations based on your situation. Simply considering bankruptcy as a viable option when looking for a debt solution will streamline your path to debt freedom.
If you are considering filing for bankruptcy and would like to know more about the process, feel free to download our free bankruptcy consultation e-book.