Many people are overly wary or eager to start the bankruptcy process because of misinformation. Bankruptcy laws are complex, and understanding your situation is the first step in determining if bankruptcy is right for you. Here are the most common myths you may struggle with before you make the decision to file.
MYTH: Anyone who files for bankruptcy is irresponsible.
REALITY: Many factors play into the reasons someone files for bankruptcy. Money management is only one reason. Individuals may also file for bankruptcy after a divorce, a serious illness, or after a serious job loss or change. Knowing when to file for bankruptcy can be a smart decision for some individuals who need to discharge debt without putting a retirement account or other assets at risk.
MYTH: You can spend a ton of money right before filing and then avoid paying the debt.
REALITY: Please do not view your bankruptcy as an excuse to max out your credit cards. In many instances, the courts will view this kind of financial activity as fraud. You will have to pay back the debt, and you may also face criminal charges. Tell your bankruptcy attorney everything about your case, and avoid changing your spending habits prior to filing.
MYTH: Bankruptcy ruins credit over the long term.
REALITY: Bankruptcy can damage your credit in the short term, but many individuals receive offers for secured credit cards in as little as a few months after filing. The idea that your credit will suffer for a decade or more is a complete myth. Within a couple of years, you can earn a high credit score and secure credit for large purchases, including a home. If you need to file for bankruptcy, do it.
MYTH: Bankruptcy wipes the slate clean and solves all financial problems.
REALITY: Bankruptcy is not easy, and it may not always result in complete debt discharge. Both Chapter 7 and Chapter 13 filings offer benefits, but you need a strong strategy to secure the best possible outcome. Without the right assistance, you may still lose certain assets and have the responsibility of paying back some debt. Hiring an experienced bankruptcy attorney will improve your ability to discharge debt and get back on your feet.
MYTH: You can’t file alone if you’re married or in a domestic partnership.
REALITY: Individuals have the option to file for a joint bankruptcy, but they can also file alone. Doing so will keep your spouse’s credit score and assets safe. Your spouse may need to disclose financial information. California recognizes community property after a marriage or union, and certain assets may be subject to the bankruptcy proceedings. Your attorney can help you determine the right approach to filing for bankruptcy, particularly if you want to protect your spouse and certain assets from the proceedings.
MYTH: Filing for bankruptcy can prevent you from securing a job.
REALITY: A bankruptcy filing, in itself, will not prevent you from finding a job. Successfully filing for bankruptcy and getting your financial affairs in order may actually improve your job prospects. Debt, collection actions such as wage garnishments, and lawsuits against you, on the other hand, can prevent you from securing gainful employment.
MYTH: You can’t file for bankruptcy if you make a lot of money.
REALITY: Anyone can file for bankruptcy, regardless of income. To determine bankruptcy eligibility, the courts will look at your complete financial situation, including your ability to pay for allowable living expenses and to service your debt. If you cannot reasonably afford to pay your debt, bankruptcy may make sense.
To learn more about bankruptcy and your situation, reach out to the Boyd Law bankruptcy attorneys in Sacramento.