Debt is easy to come by. People who have an overwhelming amount of debt may need to seek relief processes. Bankruptcy is a process that may allow filers to resolve some or all of their debt.
However, the internet is full of misinformation about bankruptcy. To ensure you understand bankruptcy before you file, you may need to understand the following:
Myth 1: You only have one choice when filing for bankruptcy
Truth: As an individual looking to file for bankruptcy, you have several options that will determine how your debt is resolved. Many people file for Chapter 7 bankruptcy, which can require the liquidation of non-exempt assets to resolve their debt obligations — although most people who qualify for Chapter 7 don’t have much in the way of non-exempt assets (if any).
Alternatively, you could file for Chapter 13 bankruptcy. This plan reorganizes debt so that the filer can easily pay it off — or most of it — over several years. People who have disposable income may file for Chapter 13 bankruptcy.
Myth 2: You can only file bankruptcy once
Truth: After filing for bankruptcy the first time, you’ll have to wait several years before you can file again. The kind of bankruptcy you previously filed and what kind you’re looking to file control how long you must wait. People can and do file for bankruptcy more than once — or even twice.
Myth 3: Your credit score will never recover after bankruptcy
Truth: While it’s true that your credit score will drop after filing for bankruptcy, you can recover it. You can take on more debt in the future and, by taking the right precautions, can slowly raise your credit score again to take on new loans.
Myth 4: You’ll lose everything in a Chapter 7 bankruptcy
Truth: As mentioned above, Chapter 7 bankruptcy can require the liquidation of assets. However, this is often very rare and, if it does happen, only non-exempt assets may be liquidated. Non-exempt assets may include things like an art collection, a summer home or a valuable sports car, for example — not the kinds of things most people with debt problems have.
There’s a lot to understand about bankruptcy that can’t be learned online. You may need to reach out for legal help to know all of your options for bankruptcy.