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Breaking down some of the more popular bankruptcy myths

As we've touched on in the past, there are an unfortunate number of stubbornly persistent myths circulating among the general public concerning bankruptcy. Indeed, our blog spent some time debunking a popular myth about bankruptcy and the affect it has on one's credit score this past fall.

The real problem with these myths, of course, is that they can serve to prevent financially distressed people from securing the fresh financial start they so desperately need and deserve. In recognition of this reality, today's post will seek to dispel a few of the more pernicious misconceptions concerning both Chapter 7 and Chapter 13.

From my television to my clothes, I'll lose it all by filing for bankruptcy

For starters, it's important to understand that no assets are forfeited when a person files for Chapter 13. Indeed, the only context in which they will even be considered is when determining the terms of a repayment plan.

As for Chapter 7, experts indicate that the preponderance of cases end up leaving assets untouched. That's because of the wide range of available exemptions, and the fact that creditors often don't want those assets not otherwise covered by exemptions given that they are either encumbered by a loan/lien or have no real value.

I'm better off just trying to pay off the debt over time   

In many situations, it's entirely possible for a person to pay down their significant debt load over time by adhering to both a rigorous repayment schedule and paring down their expenses. In other situations, this just isn't realistic and a person is likely only going to encounter more problems -- and likely incur more debt -- despite their valiant efforts.

To that end, experts indicate that trying to pay down debt instead of filing for bankruptcy is not always the best option.

A good barometer for when to start considering bankruptcy as an option, they argue, is to determine whether your debts are currently more than 50 percent of your annual income and whether you can pay off your debt in five years. If the answer to both inquiries is "no," it might be time to considering Chapter 7 or Chapter 13.   

Filing for bankruptcy means I've failed or that I'm irresponsible

There is an unfortunate tendency among many people experiencing financial problems to view filing for bankruptcy as some sort of moral failing or confirmation that they are irresponsible with money.

The reality, however, is that many people encounter serious money problems thanks to entirely unforeseeable events, such as divorce, sudden illness and, of course, the loss of a job. Furthermore, people sometimes just make mistakes, some of which can prove more costly than others.

Rather than embracing this negative perception of bankruptcy, experts urge financially distressed people to give themselves a break, and understand that filing for bankruptcy is a tool that can help them take control of their money problems and, by extension, their life.

If you have questions or concerns about filing for either Chapter 7 or Chapter 13 bankruptcy, consider speaking with an experienced legal professional as soon as possible to learn more about your options.

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