The Facts Behind Bankruptcy Myths

When people hear the word bankruptcy they often picture the worst. The thought of losing assets and damaged credit drives many people in need away from the benefits bankruptcy has to offer them. The truth is much of what is said about bankruptcy is either not true, or exaggerated. Before walking away from a potentially valuable process, get to know the common myths about bankruptcy and the real facts behind them.

Losing Assets

It is no secret that creditors may have the right to seize and liquidate certain assets in efforts to collect on a debt. However, this is far more likely to happen if you don't resolve your debts and continue to default on your payments. In a Chapter 7 bankruptcy case, the court will evaluate your debts and assets in order to determine if asset seizure is warranted. In most cases, a person who qualifies for Chapter 7 will also have few expendable assets that would be sufficient for debt satisfaction. Further, bankruptcy exemption laws protect most major assets such as a home, car, personal property and retirement funds. Asset liquidation is almost unheard of in a Chapter 13 filing since you have negotiated a repayment plan. As long as payments are made according to the Chapter 13 plan, your assets are safe from creditors.

Damaged Credit

One of the most commonly held misconceptions about bankruptcy is that it damages your credit. This is simply not true, but it is the delinquent account standing and missed payments that does all of the damage. There is no direct damage done to your credit as the result of a bankruptcy filing. In fact, bankruptcy resolves your debts and eliminates your negative account status. When your account becomes in good standing, your credit begins to improve immediately. It isn't uncommon for a person to see an improvement in their credit standing following a debt discharge. Credit repair is much easier following a bankruptcy than continuing to allow accounts to be delinquent.

Bad Reputation

Many people worry that their friends and family will find out about their bankruptcy filing. While bankruptcy filings are a matter of public record it is rare for the general public to come across this information. Bankruptcy filing information is publicly available for anyone to search and use by the courts, but there is no legitimate reason friends or family would be searching for this information to begin with. Unless your case is part of a high profile filing, there is malicious action taken against you by a third party or the case becomes part of a divorce proceeding, your filing status should be safe from the eyes of others. Some people are concerned about how a filing will affect their job. In general, employers would have no access to this information unless they (a) conduct a random credit check or (b) are ordered to garnish wages out of your paycheck. However, there are laws that prohibit employer discrimination of a filer based on a bankruptcy status.