Debunking Some Common Bankruptcy Myths
In the United States of America, individuals and businesses can pursue bankruptcy when they are unable to repay their debts. Bankruptcy aims to give debtors a fresh start while at the same time ensuring fair treatment for creditors. Depending on the type of bankruptcy filed, the debtor may liquidate their assets to repay creditors, propose a repayment plan, or reorganize debts while continuing with business. At the end of the bankruptcy process, eligible debts are usually discharged, releasing the debtor from liability for those debts. In Florida, there are four common types of bankruptcies: Chapter 7 bankruptcy (liquidation bankruptcy), Chapter 13 bankruptcy (reorganization bankruptcy), Chapter 11 bankruptcy (mainly used by businesses), and Chapter 12 bankruptcy (specifically designed for family farms and fishing businesses). Unfortunately, many myths and misconceptions about bankruptcy still abound, which can prevent people from making informed decisions about their financial situation. This article debunks some of the most prevalent myths about bankruptcy.
Myth #1: Filing for Bankruptcy Means Losing Everything
Indeed, filing for bankruptcy may mean losing some of your assets. For example, if you file for Chapter 7 bankruptcy, your assets will be liquidated to pay off debts. However, filing for bankruptcy does not necessarily mean you will lose everything. Federal and state bankruptcy laws provide exemptions that can allow you to protect certain assets.
Myth #2: Failing for Bankruptcy Means You Are Irresponsible
Medical bills, job loss, divorce, student loans, and other unexpected financial crises can push even the most responsible individuals into financial distress. Filing for bankruptcy does not mean you are an irresponsible person. It means you want to regain financial stability.
Myth #3: Bankruptcy Ruins Your Credit Forever
While bankruptcy may have a negative effect on your credit score, this effect is not permanent, and you can start working on rebuilding your credit immediately after bankruptcy. Depending on the type of bankruptcy filed, it can remain on your credit report for seven to ten years. Chapter 7 bankruptcy stays on a filer’s credit report for up to ten years. Creating a budget, applying for a secured credit card, becoming an authorized user, and making timely payments are just a few of the things you can do to rebuild your credit after bankruptcy.
Myth #4: Filing for Bankruptcy Will Affect Your Spouse’s Credit
When one spouse files for bankruptcy alone, the non-filing spouse is not affected by the bankruptcy. The bankruptcy does not show up on the non-filing spouse’s credit report. Also, the court cannot seize assets that the non-filing spouse owns independently of the filing spouse, or in certain circumstances even property that is held jointly by the debtor and the non-filing spouse (tenants by the entirety).
Myth #5: You Can Only File for Bankruptcy Once in Your Lifetime
It is not true that you can only file for bankruptcy once in your lifetime. However, whether or not you are eligible to file another bankruptcy case if you have ever filed before is a different case. For example, if you wish to file a Chapter 7 bankruptcy, and your prior case was a Chapter 7 or 11 bankruptcy, you have to wait eight years before you can be eligible to file your case.
Contact Us for Legal Help
If you are struggling with overwhelming debt and are considering bankruptcy, call a Deerfield Beach bankruptcy lawyer at the Law Office of Adam I. Skolnik, P.A. at 561-265-1120 to schedule a consultation. We help clients throughout the State of Florida including Fort Lauderdale to Boca Raton and throughout Broward and Palm Beach counties.
