Each year, there are more bankruptcy myths that emerge that deter people from managing their debt. Even though speaking with a bankruptcy attorney would clear up many misconceptions, people are intimidated by bankruptcy myths, thereby limiting a potential debt management option. However, clearing these misconceptions might help you realize that bankruptcy is a positive possibility for your current situation.
Bankruptcy attorneys often encounter clients who are overwhelmed with debt but unwilling to file for bankruptcy because of myths concerning the process and its consequences. While bankruptcy might not be the ideal solution, it’s certainly not as devastating as many would have you believe.
- Bankruptcy will negatively affect your credit for 10 years. This is one of the most common bankruptcy myths, mixing two different concepts with each other. While a bankruptcy will be reported on your credit score for 10 years, it doesn’t always mean it will have a negative effect. There are many individuals who have rebuilt good credit in as little as 18-24 months after filing for bankruptcy. In many of those cases, a Fort Worth bankruptcy attorney helped guide them through the process.
- Creditors will liquify all of your assets to pay off the debt. Many assets such as retirement benefits and 401(k) are exempt from liquidation. Furthermore, a bankruptcy attorney can help you decide which assets and debts to declare during the bankruptcy process. Failing to declare those assets or debts may result in the rejection of your filing.
- I should use all my available credit before filing for bankruptcy. Of all the bankruptcy myths, this one lands people in trouble with the law, as purposefully maxing out credit cards only to declare bankruptcy is considered a fraudulent crime.
- You should exhaust all options before declaring bankruptcy. While you should do everything you can to avoid bankruptcy, some people take this to the extreme by depleting their retirement accounts to pay off their debts. Since retirement accounts like the 401(k) and IRAs are protected from creditors, these should be untouchable funds that have nothing to do with your debts.