Even if they’ve never declared bankruptcy, people have often heard myths and rumors about the process. This can be dangerous. Buying into a rumor that isn’t factual could cause problems if you ever decide to file on your own.
With that in mind, here are a few myths to watch out for:
1. All your debt is gone.
Not necessarily. While a lot of debt can be eliminated, some things aren’t eligible. For instance, if you owe back taxes for the last two years, you still have to pay them. Bankruptcy also can’t touch court orders, like child support payments.
2. It’s better to pay your debts.
Often, it’s actually not better to try to pay everything off. People sometimes try to do this to avoid the hit on their credit score, which bankruptcy does bring. The problem is that you likely can’t afford all of that debt. You miss payments. Every month, you do repeated damage to your credit score, rather than just taking one hit, getting out of debt and working on fixing it.
3. Creditors want it all.
People are worried that all of their assets will be taken. They won’t. For one thing, many things that people love owning are essentially worthless in terms of resale value. The creditors don’t want them. Plus, for valuable items, there are many exemptions you can use. For instance, the tools of your trade may be exempt so that you can keep working.
These are just three myths. If you’ve heard them before, it’s time to start asking what else you’ve been told is a myth and how you can learn the realities of your bankruptcy options.
Source: Nerd Wallet, “5 Bankruptcy Myths Dispelled,” Sean Pyles, accessed Dec. 12, 2017