Bankruptcy is an important form of financial relief for those experiencing hardship. Bankruptcy can put an end to aggressive collection efforts and can help people eliminate some of their debts through a discharge.
Individuals who have suffered major medical issues, lost their jobs or had other extreme and unusual experiences may benefit from bankruptcy. Those with unsustainable household budgets may also eventually require bankruptcy to help them address their debts and take control of their finances.
Despite how useful bankruptcy can be, many people intentionally avoid filing because of misinformation. People regularly share inaccurate information about bankruptcy that may prevent those in need of financial relief from taking action.
What bankruptcy myths commonly hold people back from filing for the relief they require?
Myth #1: Bankruptcy leads to a loss of all assets
Some people mistakenly believe that bankruptcy isn’t an option for them because they have valuable property. They have heard that the courts require the sale of assets. Liquidation is only a risk in Chapter 7 bankruptcy, not in Chapter 13 cases. Even then, a filer has the option of using exemptions to protect assets, including their retirement savings and their home equity.
Myth #2: Spouses have to file together
Some people avoid filing for bankruptcy because they believe it could harm not just their credit and finances but also their spouses. Married couples do have the option of filing for bankruptcy together. However, they also have the option of filing individually. Each spouse could file on their own, or one spouse may file while the other does not. One spouse who has struggled with medical debt, for example, might file for bankruptcy while the other can avoid bankruptcy because the debt is not in their name.
Myth #3: Bankruptcy results in job loss
Some people fear the possibility of losing their employment when they file for bankruptcy. A sudden reduction in income can substantially worsen an individual’s financial circumstances. Technically, bankruptcy filings are part of the public record. Employers may learn about them when checking a worker’s credit or if the worker takes time off to attend meetings and hearings. However, most employers do not take punitive actions because a worker goes through temporary financial hardship. It is possible to complete the bankruptcy process without an employer learning about it at all.
Learning the truth about personal bankruptcy can help people find the courage to take control of their financial circumstances. Those who file for bankruptcy benefit from ending most collection activity and diminishing their overall debt loads. It is, therefore, often an opportunity worth exploring when one’s debt has become overwhelming.