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Five bankruptcy myths

Struggling with debt is extremely stressful. Most people also feel a sense of shame surrounding their debt. And yet, many Americans fight to pay their bills. In 2016, 794,960 people filed for bankruptcy in the U.S.

Perhaps you have medical bills, unexpected home repairs or you lost your job. A variety of situations can cause debt to mount, and when it does, it can spiral quickly. Filing for bankruptcy may seem like a last resort, but before you rule it out, here are some common myths about bankruptcy.

You lose all your property

Many people probably envision the repo man coming to take all their stuff when they think about filing for bankruptcy. This is not necessarily true. If you file for Chapter 13 bankruptcy, you keep all your assets, and you enter into a debt repayment plan.

Even if you file for Chapter 7 bankruptcy, you will likely keep a lot of your property. In this type of bankruptcy, some of your assets must be liquidated to pay off debt. However, you can file for exemptions and protect some of your property from liquidation. Once you file for bankruptcy, an automatic stay goes in place, and creditors will also have to stop contacting you. That also means your creditors cannot repossess your car or other assets. Also, many of your possessions may no longer hold much financial value, so things like your TV will likely not be liquidated to pay off your debt.

It is better to pay off debts on your own

If it is possible to pay off your debts on your own, that is your best option. However, too many people think they can pay off debt, continue to struggle and then end up digging themselves a deeper financial hole. If your debt payments exceed your income, it is time to file for bankruptcy. Or if you think it will take longer than five years to pay off your debt, it may be time consider bankruptcy.

Filing for bankruptcy means you are a failure

Many people view filing for bankruptcy as a personal failure. Certainly, some get into trouble with credit card debt, but many extenuating circumstances lead to overwhelming debt. Maybe you got divorced, had a serious health issue or you lost your job. These are things we cannot really control, so blaming yourself makes no sense.

Filing for bankruptcy allows you take control of your debt and move forward. In many cases, it is the wisest financial move.

All your debts will be forgiven

Though filing for bankruptcy will relieve you of most of your debt, some debts cannot be discharged with bankruptcy. If you owe back taxes, child support or alimony, you will still have to pay these debts. Student loans are also not typically forgiven during bankruptcy proceedings.

Bankruptcy will ruin your credit forever

Filing for bankruptcy hurts your credit, and the effects are long-lasting. If you file for Chapter 7 bankruptcy, this will stay on your credit report for 10 years. However, it does not ruin your credit for the rest of your life. You can start to rebuild your credit about a year you file. Part of your credit score is based on your debt-to-income ratio, so once you have ridden yourself of debt through bankruptcy, this will be a mark in your favor. Making on-time payments will also help repair your credit score. The interest rates you are offered will likely be higher for a while, but eventually, you can achieve a good credit score again.

No one wants to file for bankruptcy, but depending on the situation you are in, it can be the best way to rid yourself of debt and move forward. You may even be able to retain many of your assets and repair your credit before too much time has passed.

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