Being in debt is a source of almost constant stress for people who feel they have no means of dealing with it. If you then add in the prospect of having to file for bankruptcy, it’s simply too much for the average individual to deal with. It’s difficult to understand what it feels like to be staring at a mountain of unmanageable debt unless you’ve experienced it. In most cases people become paralyzed by fear instead of taking action to resolve the problem they’re facing.
In addition to this, being in serious debt has a certain stigma attached to it, and most people would rather face homelessness than admit they’re not in control of their own finances. The odd thing is that more affluent people are more likely to bury their heads in the sand about their debt than people who have been living on the breadline their entire lives.
The good news is that there’s a lot of professional help available to you, from financial counseling all the way through to bankruptcy attorneys like me. A bankruptcy attorney can help ensure you get the best possible deal from the court system.
Why then do a surprising number of people avoid speaking to a bankruptcy attorney?
#1 Ruined Credit Score
One of the most commonly believed myths is that filing for bankruptcy will destroy their credit score. This isn’t true because if you’re considering filing for bankruptcy then your FICO score has already bottomed out. It’s also worth mentioning that engaging the services of a bankruptcy attorney won’t extend the duration of the damage to your credit history – this is decided by the courts and is always within fixed limits.
#2 Losing Everything
Another myth people fall prey to is that they’ll lose all their personal possessions if they file for bankruptcy. The reality is that most Chapter 7 filings are considered to be “no asset” cases where creditors are unlikely to recoup the bulk of their debts. This means you might be able to keep a lot of your property if not all of it, including your car and home, for example.
#3 Financial Ruin
A common assumption around declaring yourself bankrupt is that you’ll have to repay every single cent of your debt. What really happens is that each filing is treated separately, with the people involved means tested. This means that your current financial status is taken into account, and depending on your earnings and current assets, you might have to repay as little as 10 cents on each dollar of your debt. This effectively eliminates 90% of your debt, permanently.
#4 Social Stigma
What concerns most people is that their friends and family will know they\’re broke because their bankruptcy filing will be public knowledge. After all, who wants to see their financial “dirty laundry” publicized in local newspapers? The truth is most newspapers don’t have the space or time to report on every single bankruptcy. In fact, if you look at a given newspaper you’ll notice they usually only report on big businesses going bankrupt. Don’t let pride and assumption stand between you and a healthier financial future.
#5 Not Enough Debt
Every bankruptcy filing is different, and not everyone who files for bankruptcy is US$2 million in debt. It actually makes sense to file for bankruptcy before things become so dire that you risk losing your home to foreclosure. The best time to take action on your debt is right now, and not in three or six months.