People often see bankruptcy erroneously in one of two ways: either as a cure-all for one's financial problems (which may well persist if underlying causes are not addressed), or as a punishment for financial missteps which will permanently ruin one's credit and financial future. In reality, though, the goal of bankruptcy is to improve one's financial circumstances by assisting one who can no longer manage his or her debt.
There are many key points about bankruptcy which are often misunderstood; we can call these "myths" or, more accurately, misconceptions.
Myth one: It is nearly impossible to qualify for Chapter 7 bankruptcy.
While it is true that Chapter 7 bankruptcy ("liquidation") grew more complex when it was amended in 2005, but people in serious financial straits may very well still qualify for filing Chapter 7. However, it is vital that one has all one's financial documentation and has the representation of a qualified attorney to manage the bankruptcy process. Why do you need legal counsel? After all, you can legally represent yourself. Simply put, your attorney will not only protect you during the process, but will help you in obtaining the best possible result in discharging your debt and ultimately getting on with your life post bankruptcy.
Myth two: Bankruptcy will ruin your credit.
While it is certainly true that bankruptcy will affect your credit for a limited time, in the long run your credit will improve. After all, one only seeks bankruptcy when one's credit has become so seriously and detrimentally compromised by accumulated debt that one feels bankruptcy is the only viable option. And some of the alternatives to bankruptcy can be even more devastating to one's credit, such a foreclosure on one's home. Ultimately, since your debt has been discharged, your credit score will improve as it will no longer reflect this debt.
Myth three: Filing for bankruptcy means losing everything you own.
Chapter 7 bankruptcy, sometimes referred to as "liquidation," does imply the liquidation of personal assets to pay creditors for accumulated debt. However, many factors come into play, and a preponderance of bankrupticies end in what is called "no asset," meaning that the debtors can keep what they own, based on property exemptions. For example, if your primary residence is declared under the Homestead Declaration in Massachusetts, you may be protected for up to $500,000 of home equity. Individual circumstance of course need to be evaluated in detail by your attorney and the court.
Myth four: Declaring bankruptcy will prevent you from obtaining credit or loans for the rest of your life.
True, you may be unable to obtain credit—especially for a large purchase like a home—immediately after your bankruptcy is completed. However, this will gradually fade, and within a short time you will be able to apply for secured credit cards and then build your credit back to good standing.