Dispelling the Most Common Bankruptcy Myths

Bankruptcy is difficult, but it is even more difficult when you find yourself dealing with the myths that surround it. The problem with many people is that they tend to hear something, they take it as gospel, and then they spread it about at will. This is no way to make friends or influence people, but as the rumors are spread around, they take root and eventually they practically become fact. We’re going to try dispelling some of the most common bankruptcy myths here in this article to help you get a better handle on the situation that you are in.

Myth #1: Bankruptcy Dismisses All Debts

When people file bankruptcy, they seem to do so under the mistaken belief that it will literally erase all of their past debts. This is not a good way to think; there are some obligations that simply cannot be erased by bankruptcy and they can include:

• Child support
• Alimony/spousal support
• Student loans
• Restitution due to a crime
• Tax debts (dependent upon the situation)

The Bankruptcy Abuse and Consumer Protection Act from 2005 put student loans into this category, though there is a separate process known as the Fairness for Struggling Students Act which would change that. This, however, is another process for you to look into.

Myth #2: Abandoning Assets before Bankruptcy is a good Idea

There is this strange belief that running up a credit card right before you file bankruptcy will be acceptable, and that you will never have to pay that money back. This, however, is a misconception, and the courts will actually consider it to be fraud. The same goes for liquidating assets right before bankruptcy. This is a game that you simply cannot win.

Myth #3: Your Credit Will Be Permanently Ruined

No, you will not ruin your credit permanently. Believe it or not, after filing for bankruptcy, you can expect to begin rebuilding your credit in six to twelve months. You may even start getting credit card offers in the mail, if you can believe that. Be careful, however, as this could lead to the same habits that landed you in this situation in the first place.

Myth #4: Bankruptcy Information Stays on your Credit Report for a Decade

It does stay on your record for a time, but the only bankruptcy information that remains for a decade is related to Chapter 7. Other bankruptcy references will only remain on your credit report for a period of seven years.

It is important that you go into this with the knowledge you need to succeed. There are lots of things for you to learn, and the road will be difficult, but it won’t be long before you manage to emerge from bankruptcy, perhaps in a better state than you went in. It is not the end of the world, even though people may want you to believe it is. Don’t worry, you will come through this just fine so long as you use common sense!