Many legal concepts are misunderstood by the general public, but perhaps the most prevalent legal myths surround bankruptcy. How often have you heard it said that you have to lose your home and your car to get bankruptcy relief? Or that the retirement savings you worked so hard to accumulate will be wiped out by filing bankruptcy?
Thankfully, both of these are myths. But too often people believe bankruptcy myths and others like them. Today, we will discuss a few of the most common myths associated with bankruptcy and give you the truth about them.
1. You might have heard people say that you will lose your car and your house if you file for bankruptcy. That’s not necessarily true. Although a home or car could be liquidated in chapter 7 bankruptcy in some situations, most people are able to keep these possession in bankruptcy. Filing for chapter 13 bankruptcy is the most common way to hold on to assets, but it is not the only way to do so.
2. Perhaps you have been told that you will lose your retirement savings in bankruptcy. Again, this is almost always false. 401(k)s, IRAs and other retirement accounts are shielded from being liquidated in bankruptcy. If you have withdrawn money from these accounts, you may lose that protection, so it is important to speak with an experienced bankruptcy lawyer before tapping into retirement savings to pay current debts.
3. Sometimes people say that you can only file for bankruptcy once in your life. Yet again, this is false. There are requirements regarding how long you must wait between receiving a bankruptcy discharge and filing another bankruptcy, but it is possible to get debt relief through bankruptcy multiple times.
4. Many individuals are worried about the impact of bankruptcy on their credit scores. This one is tricky, because bankruptcy will appear on your credit report, but it disappears after 10 years. If you are already considering bankruptcy, it is likely because you are not able to keep up with your debts. In many cases, it is better to wipe away the debts through bankruptcy. After the bankruptcy is completed, you can begin rebuilding your credit score.
Source: San Francisco Chronicle, “5 Myths About Personal Bankruptcy,” Angie Mohr, 5 May 2011