Bankruptcy myths and misconceptions abound and can keep people who are struggling with debt from pursuing this solution when it may, in fact, help them obtain a financial fresh start. Below are some common bankruptcy myths, along with the facts behind these misconceptions.
Myth 1: Bankruptcy is only for people who are irresponsible with their money.
Wrong! While some people who need to file for bankruptcy may not be the most financially responsible people, statistics show that the top reasons that people typically turn to bankruptcy include that:
- They have lost their jobs and are unable to secure new employment; as a result, they fall behind on their bills.
- They have been hit with expensive medical bills because, for instance, they sustain a serious injury or are diagnosed with a chronic condition.
- They have recently gone through a divorce.
If any of these events occurs and people don’t have a savings account, they can quickly descend into significant debt, regardless of how financially responsible they may be.
Myth 2: I will lose my home and all of my possession if I file for bankruptcy.
Wrong again! While some of a person’s assets may need to be liquidated as part of a bankruptcy case in order to pay creditors, filing for bankruptcy may, in fact, help protect a person’s home and assets, as:
- An automatic stay (i.e., a court order) immediately goes into effect when bankruptcy is filed. This legally stops creditors from proceeding with foreclosures, repossessions, wage garnishments and other legal action against borrowers.
- There are various exemptions stipulated in Colorado Bankruptcy Law that can help borrowers keep their homes, their cars and other assets (so long as the value of these assets doesn’t exceed the stated maximums).
Myth 3: Bankruptcy will help me discharge all of my outstanding debts.
Unfortunately, this is not the case. When people file for bankruptcy, the following debt will be discharged through these proceedings:
- Credit card debt
- Medical bill debt
- Car loans
- Mortgage debt.
However, the following debt is typically not discharged with bankruptcy, which means that borrowers will still be on the hook for paying it during and after their bankruptcy case:
- Student loan debt
- Some tax debt
- Court-ordered payments (like debt associated with child support and spousal support payments)
- Restitution fines association with criminal convictions.
Despite some persisting debt, however, the fact that other debt is discharged with bankruptcy can free up significant funds to help borrowers cover the remaining debt they may have after bankruptcy.
Myth 4: Filing for bankruptcy will have irreversible impacts on my credit.
Although bankruptcy will impact a person’s credit, these impacts are NOT permanent. In fact, records of filing for bankruptcy (as well as the debt associated with it) will drop off of a person’s credit report within 7 to 10 years of the filing date (depending on the type of bankruptcy a person pursued).
However, even before this occurs, a person can make great strides in improving his credit after bankruptcy as long as he pays his remaining debts on time, limits any new debt he may incur and is generally diligent with his finances.
Myth 5: Since credit card debt is discharged through bankruptcy, I can run up these bills right before I file.
Wrong! When people know they will be filing for bankruptcy, running up their credit card debt immediately prior to filing can be considered to be a form of bankruptcy fraud and, consequently, can result in:
- Criminal charges and penalties
- The rejection of their bankruptcy petition by the courts.
There are a number of other bankruptcy myths that may be confusing people about this debt relief solution. Therefore, if you have any questions regarding how bankruptcy may work for you (or what the best debt relief solutions are for your situation), don’t hesitate to contact Denver Bankruptcy Attorney Arthur Lindquist-Kleissler.
The Trusted Denver Bankruptcy Lawyer at Lindquist-Kleissler & Company, LLC
If you are buried in debt and are ready to explore your options for debt relief, don’t hesitate to contact Denver Bankruptcy Lawyer Arthur Lindquist-Kleissler. He can help you figure out your best options for resolving your financial issues.
Since 1979, Mr. Lindquist-Kleissler and the other legal professionals at Lindquist-Kleissler & Company, LLC have been providing both individuals and businesses with the highest quality of legal services when it comes to debt relief and bankruptcy (including civil litigation matters associated with bankruptcy). From simple to complex bankruptcy cases, Mr. Lindquist-Kleissler can always be trusted to help his clients resolve their cases as efficiently, discretely and favorably as possible.
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For a free 30-minute consult, contact us by calling (303) 691-9774, or email us using the form on this page. You will pay nothing up front to obtain trusted, professional advice regarding your case and your options.
From our office in Denver, Arthur Lindquist-Kleissler represents clients throughout the Great Denver Metropolitan area and Colorado, including (but not limited to) Aurora and Arapahoe County.