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Misconceptions about bankruptcy – The truth revealed

On Behalf of | Oct 3, 2024 | Consumer bankruptcy |

Filing for bankruptcy is a big decision, and many misconceptions surround the process. Understanding the truth can help those in Tennessee make informed choices when considering bankruptcy.

Here, you will find the top misconceptions about bankruptcy and what actually happens (or could happen) if you file. 

Misconception 1: Bankruptcy means you’ll lose everything

One of the most common fears is that bankruptcy will result in losing all assets. In reality, both Chapter 7 and Chapter 13 bankruptcy have exemptions that protect certain assets, such as your home, vehicle and personal belongings. Tennessee has specific exemptions that allow you to keep essential property.

Misconception 2: Bankruptcy permanently ruins your credit

While bankruptcy does impact your credit score, it doesn’t mean you’ll be financially ruined forever – Chapter 7 bankruptcy stays on your credit report for 10 years, and Chapter 13 for seven years. However, many people can start to rebuild their credit within one to two years after filing by managing their finances responsibly.

Misconception 3: Only irresponsible people file for bankruptcy

Filing for bankruptcy doesn’t mean someone has been financially reckless. Many Tennessee residents file due to medical debt, job loss, divorce or unexpected expenses. Bankruptcy provides a legal way to reorganize finances and get back on track.

Misconception 4: You can only file for bankruptcy once

Some believe that filing for bankruptcy is a one-time opportunity. However, it is possible to file multiple times despite waiting periods between filings. For example, if you’ve filed Chapter 7 in Tennessee, you must wait eight years before filing again.

Misconception 5: All debts are wiped out in bankruptcy

While bankruptcy can discharge many debts, some debts, such as student loans, child support and certain tax obligations, are generally non-dischargeable. It’s essential to understand which debts can be cleared during the process.

Filing for bankruptcy can be a lifeline, but dispelling these misconceptions is crucial for those considering their financial options in Tennessee.