While there are many misconceptions that surround the bankruptcy process, most of them stem from legitimate fears about the process. Because the average person knows very little about the bankruptcy process, many people assume they will end up worse in the end. The truth is there is much to be gained from bankruptcy for those experiencing certain financial situations, but many people avoid the process due to several myths. There are two myths that often surprise many people.
You File Only When You Don’t Have Money
Although there are some instances in which bankruptcy is filed because a person cannot afford to pay for their debts, this rarely means that they are completely broke. To qualify for Chapter 7 a debtor must earn less than the median income level of their state, which is often a middle class earning. For example, the median income in Texas is $39,673, an income that is generally sufficient for making ends meet. The trouble comes into play when a person holds more debts than assets and income, leaving them financially empty by the time their essential living expenses are paid. So even in a Chapter 7 case, most debtors are coming into the bankruptcy with money and enough income to pay their essential expenses.
A Chapter 13 case entails a debt repayment plan that is often referred to as the wage earners plan. This is because debtors looking to resolve debts, but do not qualify for Chapter 7, can seek bankruptcy repayment protection in Chapter 13. Qualifying for Chapter 13 most definitely means the debtor has an adequate income level to support their daily living expenses plus a little extra to go towards repaying their debts over time.
Bankruptcy Makes You A Bad Citizen
Many people avoid filing for bankruptcy because they fear the stigma associated with the process. Although debts are ultimately the responsibility of the debtor, ending up in bankruptcy is not the end of the word. In fact, the majority of bankruptcy filers end up through no fault of their own. Medical debts and job loss are two big contributing factors to why a person ends up in bankruptcy. When unforeseen circumstances arise, it is easy to fall into financial hardship. Filing for bankruptcy doesn’t make a person a bad citizen, but abusing the system and mismanaging one’s money is a cause for concern.