An increasing number of Americans are filing for bankruptcy due to unforeseen circumstances, medical expenses, divorce, or simply poor financial planning. Because of this, you will hear a lot about bankruptcy from local media sources suggesting that bankruptcy might be a good option for you, as well, if you are struggling to meet your financial responsibilities and to pay your debt. However, there are also several common misconceptions about bankruptcy, and these range from how easy it is to file for bankruptcy to what it will actually do for you.
First, bankruptcy is one solution for handling your overburden of debt; it is not a guaranteed pass to immediate credit. It is a myth that filing for bankruptcy will always give a consumer a new start with credit right away. In fact, depending on what type of bankruptcy you file and the circumstances in which you filed it, it could still be 5-7 years before you are able to buy or rent a home without a significant down payment to compensate for your credit history.
Second, bankruptcy is not always a clean slate. Sometimes, not all debts will be discharged (such as student loans, taxes, etc.) and under Chapter 13, you will still need to pay back some of your debts. This amount will be determined by the court, which will set you up on a court-ordered payment plan that has been renegotiated to better terms.
Finally, bankruptcy is a long and tedious process; it is not a quick and easy solution to your financial troubles. There will be many documents and statements to collect, many forms to fill out, and you will need to spend the money on a lawyer who has expertise in bankruptcy law for your particular state. Many courts also require that you attend financial planning and budgeting classes as part of your commitment to work toward a more responsible financial future.
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