Common Bankruptcy Myths Debunked

Bankruptcy is a legal tool that helps individuals and businesses overcome financial hardship, yet many misconceptions surround the process. At Sigal Law Firm, we believe in educating our clients and dispelling the myths that often prevent people from seeking the financial relief they need. Below, we address some of the most common bankruptcy myths and uncover the truth behind them.

Myth #1: Filing for Bankruptcy Means You Lose Everything

Truth: Many people believe that filing for bankruptcy means losing their home, car, and personal belongings. In reality, bankruptcy laws include exemptions that allow individuals to keep essential assets, such as a primary residence, vehicle, and retirement accounts. Chapter 13 bankruptcy, in particular, helps reorganize debts while protecting valuable assets.

Myth #2: Bankruptcy Ruins Your Credit Forever

Truth: While bankruptcy does impact your credit score, it does not mean your credit is ruined forever. Many individuals start rebuilding their credit soon after filing, and within one to three years, they may qualify for credit cards, car loans, or even mortgages. Responsible financial habits post-bankruptcy can accelerate credit recovery.

Myth #3: You Can Only File for Bankruptcy Once

Truth: While there are limits on how often you can file for bankruptcy, you are not limited to filing just once. The timeframe for refiling depends on the type of bankruptcy previously filed. For example, you must wait eight years between Chapter 7 filings and two years between Chapter 13 filings. However, in many cases, a single filing is enough to resolve financial difficulties.

Myth #4: Only Irresponsible People File for Bankruptcy

Truth: Bankruptcy is often the result of unexpected financial hardship, not financial irresponsibility. Many people file due to job loss, medical emergencies, divorce, or economic downturns. Filing for bankruptcy is a responsible financial decision when faced with unmanageable debt, providing a structured way to regain stability.

Myth #5: Bankruptcy Discharges All Types of Debt

Truth: While bankruptcy can eliminate many types of unsecured debts, certain debts are non-dischargeable. These include child support, alimony, most student loans, and certain tax obligations. However, bankruptcy can still provide relief by restructuring these debts under a manageable payment plan.

Myth #6: You Should Max Out Credit Cards Before Filing for Bankruptcy

Truth: This is a dangerous misconception. Running up debts before filing can be considered fraud, leading to denial of discharge or legal consequences. It is crucial to consult with an experienced bankruptcy attorney to handle debts properly before filing.

The Truth About Bankruptcy

Bankruptcy is not a financial death sentence; rather, it is a legal solution designed to help individuals regain control over their finances. If you are struggling with overwhelming debt, Sigal Law Firm is here to guide you through the process and find the best path toward financial recovery.

Contact Sigal Law Firm for a Free Consultation

If you’re considering bankruptcy but are hesitant due to common myths, reach out to us. Our experienced attorneys can provide personalized guidance and a clear path forward.

📞 Call us at 248-220-1234 📧 Email us at bankruptcy@sigallaw.com