Although filing for bankruptcy can be a difficult choice, it can also provide a solution to many problems. According to the U.S. Courts, 387,721 people filed for bankruptcy in 2022.
You may not understand the bankruptcy process or its meaning. The good news is? Knowledge is power. The more you learn about bankruptcy, and the more informed you are about it, the better you will be able to decide if it’s for you.
The preponderance in misinformation surrounding bankruptcy is one of the greatest challenges. A seasoned OH lawyer tackles eight myths and misconceptions surrounding bankruptcy.
Myth # 1: Bankruptcy destroys your credit for life
The filing of bankruptcy can permanently damage your credit. Your bankruptcy will appear on your credit report from 7-10 years and you will have limited credit during this time.
This is not permanent. You can expect to receive low-limit secured credit cards as soon as you file for bankruptcy.
While your credit score will be affected by filing for bankruptcy, there are ways to immediately improve it. You can do this by establishing good credit habits, such as tracking your credit score, credit report and paying your bills in full and on time.
Myth # 2: Bankruptcy automatically eliminates all debts
There are two kinds of bankruptcy: Chapter 7 and Chapter 13. Both types provide a new start but neither is a complete clean slate.
In a Chapter 7 bankruptcies, your non-exempt property will be sold and the proceeds will go to your creditors. When the bankruptcy is discharged, what’s left of unsecured debt, and even some secured debt, is wiped out. You will no longer have to make payments at this stage.
Child and spousal maintenance, student loan and tax debts cannot be discharged, so you are still obligated to pay these.
Your debts will not be wiped out with a Chapter 13 bankruptcy. Instead, they are reorganized to a 3-5-year payment plan that is affordable. Once you complete this plan, your debts will be forgiven.
Chapter 7 bankruptcy is often preferred over Chapter 13 bankruptcy. However, it depends on your specific situation. If you’re considering bankruptcy, a OH bankruptcy attorney can provide the guidance that you need to decide which type of bankruptcy is right for you.
Myth # 3: Married couples must both file for bankruptcy
You should both declare bankruptcy if you share a debt with your spouse. If you only file when you both are responsible for the debt, the creditors may seek full payment from the spouse who did not file.
Not all debt is shared. If one spouse is the only spouse with debt, then it can be beneficial to only file bankruptcy.
Working with a specialist in debt relief who is familiar with the Ohio bankruptcy laws can be a great way to take the right approach.
Myth #5: Spending sprees are the best thing to do before declaring bankruptcy
You might think that if all your credit card debt will be wiped out in Chapter 7 bankruptcy you can spend recklessly just before filing. All your debt will be gone, right?
But not so fast. Spending excessively before filing for bankruptcy constitutes fraud. Debt resulting from fraud cannot be repaid.
What’s the takeaway? Spending recklessly before declaring bankruptcy will only dig you deeper into debt.
Myth #5 – Bankruptcy results from a personal failing or character flaw
One of the most common misconceptions is that bankruptcy is only for those who are financially irresponsible. This is a common misconception, as many people avoid or delay bankruptcy because of shame.
Although it is true that poor financial management can lead to bankruptcy, the primary causes are divorce, high medical costs, and loss of employment. Add to that an unhealthful economy, and these financial issues are magnified.
Reframe your mind about bankruptcy. Remind yourself that this financial solution open to all citizens has a meaningful and valid purpose: to give “honest but unfortunate debtor[s]…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt,” according to the Supreme Court.
Myth #6 – You will have nothing left after bankruptcy
The bankruptcy exemptions in each state protect your assets and property from liquidation. Ohio bankruptcy exemptions include:
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Protecting up to $136.925 in home equity per spouse
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Automobiles: Protection of up to $3 775 per motor vehicle
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Money up to $475 in cash or at the bank
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Retirement Plans, such as IRAs and 401ks
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Compensation for personal injury and wrongful deaths
It is possible in some cases to reorganize debts so that you qualify for exemptions. It’s tricky because excessive planning for exemptions can result in criminal prosecution.
Myth #7 – You will have everything left after bankruptcy
Many people believe, erroneously, that they can strategically shield their assets by repositioning these as exemptions. This is not true.
You can expect to lose some things when you declare bankruptcy. You may lose your luxury items and/or non exempt property, for example. The proceeds will be used to pay off your debt.
Remember that assets that are leased, rented or heavily leveraged are not debts, and therefore are not available to creditors.
Myth #8 – It’s not always your only option
As we have already mentioned, bankruptcy is not always the best option. It’s not the only solution if you feel overwhelmed by debt. Credit counseling, debt consolidation plans, debt management programs, and debt settlement are all alternatives to bankruptcy.
A bankruptcy lawyer in OH can also be of assistance. A knowledgeable and compassionate attorney can help guide you through the complicated bankruptcy process, if/when appropriate. They can also help to understand all your options to help you reach financial freedom and minimize the impact on your assets, credit and life.
Myth No. 9: Filing for bankruptcy is only a one-time thing
It’s not uncommon to find yourself in financial trouble more than once in your life. You’re not completely out of luck, contrary to popular belief.
Many people think that bankruptcy can only be filed once. However, it is possible to file Chapter 7 or Chapter 13 every 8 and 2 years. In the case of Chapter 13, repayment plans are usually longer than two years. Therefore, any subsequent filings will be after the previous reorganization has been completed.
Bankruptcy – How to get the fresh start you need
Although bankruptcy can be difficult, it is also a lifeline for those who are drowning in debt. You may want to reconsider your options if you have been avoiding bankruptcy because of one or more myths.
If you are recovering from a financial crisis such as a health problem, resolving a mortgage crisis or a business failure you can move on with your life under the guidance of empathetic and experienced debt relief lawyers.
The post Bankruptcy Myths Vs. Reality: Insights From a Dayton, OH Attorney first appeared on Attorney at Law Magazine.