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If you are at or nearing the point of declaring personal bankruptcy you may be feeling scared, confused, angry, or sad.  The information available in the media and advice you may get from friends and family is overwhelming and much of it negative.  What follows are some of the common myths of bankruptcy and the truth of what really happens in this process.

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Myth #1 : People Who Declare Bankruptcy Are Failures

The reality is that the number one reason people declare personal bankruptcy is due to medical bills. Even with health insurance, unforeseen medical expenses can exhaust savings and deplete home equity and retirement savings.

Job losses are another major reason bankruptcy is declared. Even with savings and responsible spending, it may become impossible to pay bills without income.

The truth is that bankruptcy affects people of all income levels and professions. Others don’t need to know you are declaring bankruptcy.  Even though the information is in public records, most people will not go to the trouble to access the information. This is a personal matter between you and your attorney and your creditors.

Myth #2: I Will Lose Everything I Own

While each state’s laws are different, exemptions to bankruptcy often allow you to protect much of your property.  A qualified bankruptcy attorney can advise you about exemptions they will affect you.

You never want to hide assets for fear of losing them.  Your case could be dismissed by the courts if it is determined that assets were hidden. You may want to read our article Top Five Things to Do Before Filing for Bankruptcy that outlines what you can do before the process begins.

 

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Myth #3: My Credit Will Be Ruined

In fact, filing bankruptcy and quickly improve one’s credit. Bankruptcy will show up on your credit report for seven to ten years. It is up to the creditor how to use or not use this information.  When extending credit after bankruptcy, creditors will also look length of time you have been employed,  your income, and other factors which demonstrate your ability to pay your bills.

While it is possible that declaring bankruptcy could result in higher interest rates on future loans and mortgages, it is still possible to get these kinds of loans in the future. Also, a positive employment record and making debt payments on time can improve your credit score.

Myth #4: I Don’t Need An Attorney To File For Bankruptcy.

While this is true, it may be less stressful and easier to work with an attorney rather than going through the proceedings alone.  Bankruptcy laws vary by state and there are many decisions that need to be made that can affect your finances for years to come.

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Note: This is not meant to serve as legal advice. You must consult a lawyer for proper legal advice.

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