Five Common Misconceptions About Bankruptcy

For many people suffering from financial distress, bankruptcy often represents a “low point” that they want to avoid at all costs. However, this fear and hesitancy often comes from misconceptions about bankruptcy that are surprisingly common among regular people. Here are five common misconceptions people have about bankruptcy:

1. It is a personal or moral failing
   • A surprising number of people seem to believe that only people who are irresponsible with their money will find themselves in a position where they might consider bankruptcy, but this is far from the truth. The vast majority of people who declare bankruptcy do so because of circumstances beyond their control, such as sudden medical expenses, natural disasters, or losing one’s job or business. In these cases, bankruptcy helps them manage expenses they otherwise could never reasonably afford.
2. You will lose everything you own
   • Another common misconception is that bankruptcy means you lose everything you own. While it is true that you may need to sell some of your property to pay your debts, you will never lose everything you have. In fact, if you declare Chapter 13 bankruptcy, also known as a wage earner’s plan, you may not need to sell off anything, paying off your debts through a structured repayment plan.
3. You will become homeless
   • One of the other major misconceptions people have is that declaring bankruptcy will lead to becoming homeless. However, this is the opposite of the truth: when you declare bankruptcy, any ongoing foreclosure or eviction proceedings against you immediately stop. From that point, you cannot be removed from your home until the bankruptcy process is over.
4. It will ruin your credit
   • Strictly speaking, it is true that declaring bankruptcy will leave a mark on your credit that will negatively impact your ability to obtain a loan or credit cards. However, many people’s credit scores actually increase after they declare bankruptcy. This is because most people who declare bankruptcy have so much debt that the amount of debt they get rid of outweighs the harm a bankruptcy does to a person’s credit.
5. It will destroy your financial future
   • One of the biggest misconceptions people have is that declaring bankruptcy is the end of the line, financially speaking, and that it is nearly impossible to recover afterwards. However, for many people, bankruptcy instead represents a chance to start fresh, without the weight of overwhelming debt. The only way to know for sure if bankruptcy might be right for you is if you contact a bankruptcy lawyer who can go over your options and figure out what works best for you.

Bankruptcy is a complicated and stressful process, and one you shouldn’t attempt to undertake on your own. If you are in severe financial distress and considering bankruptcy, call the bankruptcy attorneys at McGuire, Pelaez & Bennett at 631-348-1702, or visit our contact page. Our offices are conveniently located in Central Islip, right here on Long Island. Our bankruptcy attorneys will work with you to ensure the best possible outcome for you and your family, and make sure that you gain the maximum possible benefit from bankruptcy protection.