The last thing you want to do is file for bankruptcy. If anything, you should be saving and investing more in your dreams. However, things tend to fall apart for many, and sometimes filing for bankruptcy is the best solution you have for salvaging your financial situation. Many famous people and successful entrepreneurs have filed for bankruptcy and bounced back a few years later. Unfortunately, there are still various misconceptions about bankruptcy, especially following the enactment of new laws back in 2005. Here is a brief look at some of the popular myths about bankruptcy petitions.
- Myth 1 – You can no longer file for bankruptcy
Today, the biggest myth is whether one can still file for bankruptcy following the amendments of bankruptcy laws. Contrary to popular belief, the 2005 bankruptcy laws (BAPCA) do not prevent anyone from filing for bankruptcy. They made a few amendments to existing bankruptcy laws. Any eligible entity (individual, corporation, partnership) can file for bankruptcy. However, you might have to settle for a different Chapter than what was previously available.
- Myth 2 – Bankruptcy permanently damages your credit score
Bankruptcy will stay on your credit report for up to ten years. Nevertheless, there is a lot you can do to build your credit during this time. Once the bankruptcy is completed and discharged, the new record wipes out your previous credit history. Bankruptcy can put a dent on your report for a few years, but this does not mean your credit score is always going to be bad.
- Myth 3 – You will lose all your assets
People assume that bankruptcy will reoccupy your remaining asset as partial settlement for the debt owed. While some assets may be liquefied and paid to the creditor, some clauses can protect your exempt assets. Chapter 11 and 13 bankruptcy petitions, for instance, can help you reorganize your debt into a new repayment plan. This does not involve taking any of your assets.
- Myth 4 – You can only apply once
Since bankruptcy takes ten years on credit history, most people assume you can file only once in a lifetime. This couldn’t be further from the truth. Once the court completed and discharged your bankruptcy, you won’t be able to file another petition for the next eight years. After that, depending on your situation, you can file for bankruptcy again.
There are several other myths about bankruptcy, including the fear of “everyone finding out that you are broke.” Others also believe your pay will get garnished if you file for bankruptcy. These are merely assumptions. Only a select few will know about your bankruptcy status unless you are a global icon or celebrity. Bankruptcy petitions can also stop your pay from being garnished. It is essential to consult an experienced attorney to help clear any doubts and concerns. Understanding your situation and options will make it easier to make informed decisions.
Bankruptcy is not the end of anything. You can perfectly recover from a bankrupt position to stability. Some business owners specifically file for bankruptcy to keep debt collectors away and reorganize their finances. However, it is essential to analyze and understand your situation before filing for bankruptcy carefully. The services of a trustworthy, experienced bankruptcy attorney may come in handy in such cases.