The word "bankruptcy" alone is enough to make people shudder. Part of that is because it's a difficult process, but part of it is also because of bankruptcy myths that make it seem even worse.
Sure, the process isn't pleasant, but many people don't even really understand what that process is. That means they have no way of knowing whether it's the right choice for them.
To help set the record straight, we wanted to break down some common myths about bankruptcy and give some real information about what the process involves. Then you can make an informed decision about whether bankruptcy can help you.
- It's only for the poor. Too many people equate bankruptcy with poverty, but the two aren't linked. Poverty is a financial condition in which you don't have enough money to meet basic needs. Bankruptcy means you've accumulated more debt than you can pay. In some cases those two conditions overlap, but they don't have to.
- It's proof you mismanaged your money. Debt can come from poor money management, but more often it comes from necessary expenses that balloon out of control. Health care expenses, divorce costs, or losing your job are all things that can lead to serious debt. Filing for bankruptcy doesn't say anything about you personally, except that you could use a little help.
- It's a completely clean start. Bankruptcy does help you handle debts, and in some cases it helps you get rid of them. But not all debts can be cancelled. Things like student loans, child support, and debts related to fraud won't be forgiven in bankruptcy. If those make up the bulk of your debt, another option may help more than bankruptcy.
- It will ruin your credit. This one is partially true, but the damage to your credit isn't permanent. Filing for bankruptcy will bring your credit score down; the higher it was to start, the bigger the drop when you file. But within a year or two you should be able to start rebuilding your credit, and then your score will go back up.
- It's something you can handle on your own. Lots of places offer do-it-yourself forms for bankruptcy, which gives the impression that you can just fill out the paperwork and be done. But it's generally not that simple. If you're thinking of filing for bankruptcy, talk it over with a lawyer first to make sure it's the right choice for you. If it is, you might want legal representation during the process too so that you can get the best possible outcome from an admittedly unpleasant situation.