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4 Myths about bankruptcy

When it comes to bankruptcy, there are a lot of myths:

  • The trustee will take literally everything, including your TV and your grandmother's china.
  • You'll never be able to apply for a credit card again.
  • Bankruptcy is the ticket to getting rid of pesky alimony payments.

These things are simply untrue. In fact, bankruptcy can be one of your greatest tools in helping turn your finances around. Here are four myths people have when it comes to bankruptcy.

Myth 1: Everything will be lost.

The biggest myth is that bankruptcy means that people lose everything. However, most bankruptcy filers are able to keep their most important possessions, including their homes or cars in certain cases.

Yes, some assets may need to be sold off or reorganized into a payment plan, but the day-to-day possessions and family heirlooms rarely do. Most states, including Tennessee and Kentucky, have bankruptcy exemptions that allow you to protect what matters most during a bankruptcy filing.

Myth 2: You will never get access to loans or credit cards again.

There's no point in beating around the bush. When you consider filing for bankruptcy, it will remain on your credit history for some time.

However, contrary to the belief, this does not mean that you will not have access to loans or credit cards. Once your debts have been discharged, you can start rebuilding your credit right away by paying off your bills every month on time and in full. The bankruptcy process requires individuals to complete credit counseling anyway, and with good money habits like budgeting and spending wisely, you'll be surprised at how soon your score recovers.

Myth 3: Bankruptcy will clear all of the debts you owe.

You should not choose bankruptcy with the hope of clearing all your debts. While bankruptcy will clear most of your debts, there are some that you will have to continue paying, even if they are already behind. This includes child support and alimony payments, as well as certain tax debts. Also, if you have student loans, they are usually not dischargeable in bankruptcy.

Myth 4: Paying off debt is the right thing to do.

Everyone wants to make good on their promises. We get it. But bankruptcy isn't a sign of financial failure. Most people fall into serious debts because of things they can't control, like the inability to find work or a sudden, life-altering injury.

Keep in mind too that most debts carry interest, and the higher the interest rate, the more you will end up paying overall. This creates a vicious cycle, so that even when you throw all of your available income at your debt load, it may still not be enough to make a dent.

Bankruptcy can be the key to getting a fresh financial start. A good gauge is to determine whether you have any chance of paying off your debts within the next five to 10 years. If not, maybe it's time to talk with a bankruptcy attorney.

Get a professional's opinion

Declaring bankruptcy is a good way of getting your financial records straight, but it's not the right solution for everyon. Before filing for bankruptcy, you should contact an attorney and find out if it is the best option for you. At MBK Legal, we're committed to helping people understand the truths about bankruptcy. We'll listen to your concerns and help you determine whether bankruptcy is the most appropriate option for you.

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Mathis, Bates & Klinghard PLLC
412 Franklin Street
Clarksville, TN 37040

Phone: 931-444-3153
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