Why these 5 Bankruptcy Myths are Wildly Untrue

The myth surrounding bankruptcy look a lot more like cartoon caricatures than real life. The ideas that filers are either deadbeats sitting at home playing video games or left homeless have zero basis in reality. Bankruptcy laws are meant to help people pull themselves out of tough situations by forgiving debts and providing a clean slate to start over. It’s a type of financial second chance. Hopefully, by dispelling some of the myths about bankruptcy, everyday Floridians in financial straits will consider a filing.

Most Filers are Financially Irresponsible

American culture too often descends into finger-pointing. That idea that bad things must be someone’s fault may be the reason that the myth exists that only irresponsible people file for Chapter 7 bankruptcy.

The basic concept behind bankruptcy law runs contrary to this just being deadbeats and bad decision-makers taking advantage of some loophole. The fundamental idea behind bankruptcy filings is that individuals and companies simply cannot meet their obligations despite making a concerted effort. In fact, overspending does not rank as the leading cause of Chapter 7 bankruptcy.

According to a research by the Kaiser Family Foundation, medical bills rank as the heaviest financial burden and cause of bankruptcy filings. Consider that falling ill may result in missing work or being unable to hold down steady employment. Couple the lost earnings with skyrocketing medical bills and that’s a double financial whammy. Basically, the top reason people slip into bankruptcy is because they are struggling to stay healthy or just alive.

Bankruptcy Will Destroy Your Credit

One of the myths that holds people back from discharging debts they are struggling with is the myth that it will negatively impact their credit score. That, in turn, will eliminate their ability to make major purchases by getting a car loan or mortgage. In reality, the opposite may be true.

Credit scores are impacted by things such as income-to-debt ratios, consistent payment history and steady employment among others. If you have faltering finances and are missing or making late payments, then it is likely your credit is already in a death spiral. Filing a Chapter 7 bankruptcy will wash away the debt that is pulling you down and provide a pathway to re-establishing good credit. Bankruptcy means taking a short-term hit to potentially achieve long-term financial stability.

The Bank Will Take Your Home

The myth that you will “lose everything” if you file bankruptcy is more of a cartoon network image than a reality. Chapter 7 bankruptcy filings generally run between those with few assets to others that have modest homes, automobiles and personal belongings. Many of these items are exempt from creditors forcing liquidation to repay debts.

Florida handles items such as cars based on the “equity” you have in the vehicle. That would include the total value if its paid off or the difference between the loan amount owed and book value. In terms of home ownership, Florida enjoys a homestead exemption that residents can assert. Although many assets can be protected during a bankruptcy, you will be required to keep up the payments.

Bankruptcy Eliminates ALL Debts

Just like filing a Chapter 7 or 13 bankruptcy won’t leave you penniless, on the street wearing just a barrel, they also won’t necessarily clear away everything you may owe. A good example of the limits of bankruptcy is student loan debt. There are limited cases in which school loans can be discharged and a good-faith effort must have already occurred to keep up with payments. Bankruptcy isn’t a free ride. It’s a reasonable way to address excessive debt and regain financial stability.

You Have To Be Broke To File Bankruptcy

This may be the biggest misconception about bankruptcy filings. People do not have to fall all the way down to skid row to be eligible for a Chapter 7 filing. Bankruptcy is based on a debt-to-income measurement. That simply means that your debt outweighs your ability to make payments.

If you have a steady income and can manage some of your obligations, you may qualify for a Chapter 13 that reduces your monthly payments and discharges certain debts. When debts far exceed your earnings, the likelihood of debt discharge through Chapter 7 may be the best option. The point is really that you can be earning money, keep property such as a primary residence, tools, automobile and personal belongings. Bankruptcy is meant to keep people afloat in a reasonable standard of living while providing a clean slate and second chance. You don’t have to be broke to file.

Contact An Experienced Florida Bankruptcy Attorney

The general public has many misconceptions about how bankruptcy filings work and who is eligible. If you are in a difficult financial situation, it’s important to discuss your options with an experienced bankruptcy attorney. The legal team at Yardley Law helps Floridians from all walks of life get a second chance.


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