Five of the Most Common Myths About Bankruptcy

For many years, banks have promoted a number of bankruptcy myths, especially the five listed below. These myths were strong enough to convince lawmakers to pass a sweeping bankruptcy limitation measure in 2005. Today, almost 20 years later, these myths are strong enough to prevent many Indiana families from filing the bankruptcy, that deep down, they know they desperately need to file.

When our Merrillville bankruptcy lawyers work on your case, our team relies on facts instead of myths. The facts about bankruptcy are clear. Only this federal debt relief program immediately stops foreclosure and other adverse actions. Only bankruptcy protects your most important assets from liquidation and ensures that debt discharge goes according to plan. All facts combine to give your family the fresh financial start it needs and deserves.

MYTH: People Who File for Bankruptcy are Failures

This myth probably comes from Monopoly. In this board game, players who file bankruptcy must leave the game, and they have no hope of rejoining it.

As a general rule, it is a bad idea to base important life decisions on board games. That is especially true if, as is the case in this situation, the board game is flat wrong.

As mentioned, bankruptcy gives families a fresh start. To use a Monopoly analogy, filing bankruptcy is a little like being stuck on the Jail-Just Visiting square for a few turns. Bankruptcy suspends, but certainly does not end, financial activity in life. Once they are free of crushing debt and start rebuilding their credit, most former debtors work their way around the board like nothing happened.

MYTH: Filing Bankruptcy is Humiliating

Once again, this myth has a grain of truth. A bankruptcy filing is a public record, so technically, everyone knows. However, unless you are a movie star or a multinational corporation, most people simply do not care. 

Some people and organizations, like current and potential lenders and landlords, care. However, in our experience, if former debtors are upfront about their past filings, have a reasonable explanation for the filing, and have changed their financial habits for the better, these people and organizations are quite forgiving. Many of them have been in the same boat.

MYTH: Bankruptcy Ruins Your Credit

Nope. In most cases, by the time people file bankruptcy, repeated late payments and other negative information have already ruined their credit scores. True, bankruptcy is a negative event. Generally, however, a bankruptcy filing just makes a bad score worse. That’s not much of a drop.

Additionally, if people responsibly use credit after their debts are discharged, their credit scores rise quickly. In many cases, after about six months, their post-filing scores are higher than their pre-filing scores.

MYTH: The Effects Last

Once again, nope. Most creditors focus on the most recent ninety or one hundred twenty days. They do not care about negative information from five or six years ago, just like they don’t care about positive information from that long ago.

MYTH: You Will Lose Everything

For the origin of this last myth, we’re back to Monopoly. These players lose all their cardboard properties as well as all their plastic houses and hotels when they file bankruptcy.

Once again, the real world is different. Personal property, including houses and motor vehicles, is usually exempt. A Merrillville bankruptcy lawyer can also unlock advanced options that protect additional property.

Count on a Hard-Working Lake County Attorney

No matter what financial emergency you face, bankruptcy could be a way out. For a free consultation with an experienced bankruptcy attorney in Merrillville, contact Whitten & Whitten. Convenient payment plans are available.