Common Myths and Misconceptions of Bankruptcy
Bankruptcy is a complex topic that can be misunderstood in many ways. While the Internet has created a great source for people to gather reliable information, it has also created a breeding ground for misinformation, myths, and many less-than-reputable companies providing less-than-accurate information in an attempt to pull the wool over people’s eyes.
So, what’s the real deal with bankruptcy? Read on to learn about some of the common myths and misconceptions and more importantly, to get the facts.
Myth #1: Married Couples Must File Together
This is absolutely not a requirement. Too often, spouses assume that their financial obligations are entangled because they’re married. After all, when you get divorced, your spouse is entitled to half of everything, right? This is a different topic entirely. Your personal credit situation is not related to that of your spouse’s unless you have joint accounts or loans. But if there are jointly-owned assets, like a house, all jointly owned assets must be listed in the bankruptcy. But normally all assets can be fully protected by the bankruptcy exemptions. And, if not, the debtor could file a chapter 13 and then there would be no risk of losing any assets. Of course, this is a discussion to have with an experienced Portland bankruptcy attorney.
If your spouse holds the mortgage note for your house and your credit is a wreck that only bankruptcy can resolve, you can safely file and clean up your finances without your partner also having to file. Of course, if you do share any debts, it could make sense for a joint filing, but it still would not be required. The circumstances vary from one case to the next, so you’ll want to choose a reputable Portland bankruptcy lawyer who can walk you through the process.
Myth #2: Bankruptcy Erases ALL Debt
Bankruptcy can discharge nearly all of your debt. However, there are different types of bankruptcy filings and they do not discharge everything. While you can get rid of credit card debts, personal loans, utility bills, unpaid rents, and other unsecured debts, bankruptcy will generally not erase:
● Student loan debt
● Tax debt within the last 3 years (older tax debt could potentially be discharged)
● Child/spousal support debt
● Court/government fines
Myth #3: You’ll Lose It All/You Can Save Everything
There’s a lot of talk out there of extremes– you’ll either “lose everything” or you’ll be able to find a swift lawyer who can help you keep all your assets even if you file for bankruptcy.
This is false on both accounts. Bankruptcy isn’t going to send you to the streets with the clothes on your back. Most of the time the relevant bankruptcy exemptions fully protect all assets. But occasionally a debtor has non-exempt assets. In that situation, they can potentially work out a settlement with the chapter 7 trustee or file a chapter 13 (in a chapter 13 there is no risk of losing any assets—even non-exempt assets).
Myth #4: Bankruptcy Permanently Kills Credit
Some people are worried about filing because they don’t want it to completely ruin their credit for life. The good news is that this won’t happen. Your credit will be impacted, of course, and the bankruptcy will show on there, but you’d be surprised just how quickly you might be able to get a secured card and start rebuilding your credit. There are people who’ve filed for bankruptcy in the past with near-perfect credit now. Also, I have had many clients that had bad credit scores at the time of filing and immediately saw a significant increase in their credit scores (around 100 points) immediately from filing the chapter 7.
These are just a few of the top myths floating around out there. If you think bankruptcy is the answer, you should talk to someone right away. Every situation is different and a qualified Portland bankruptcy lawyer can help you decide the best course of action and understand how bankruptcy actually works, as well as whether it will work for you.