No one in Texas decides to file for bankruptcy on a whim. In fact, there are many misconceptions circling around regarding the “perils” of bankruptcy. However, just like anything else, don’t believe everything you hear.
First, a person may not lose everything when they file for bankruptcy. Most people who file for Chapter 7 bankruptcy file what is known as a “no asset” case, meaning they get to keep most of their property. This is because state law exempts many types of possessions from the liquidation process. Also, since many of a debtor’s possessions aren’t worth very much or may still have a lien on them, a creditor would have no interest in them. Moreover, if a debtor qualifies for Chapter 13 bankruptcy, then none of their assets will be liquidated.
Keep in mind that while filing for bankruptcy will discharge many types of debts, it may not discharge all of one’s debts. This is because of the general sense that a person should be responsible for certain debts, such as child support and taxes, no matter what. However, home loans, car loans, credit card balances and medical expenses may be forgiven through bankruptcy.
Also, just because you file for bankruptcy doesn’t mean you’re irresponsible. Many times, a person incurs expenses through no fault of their own. For example, they may rack up medical bills due to a serious illness, or they may find themselves a victim of a company-wide layoff, leaving them without the income needed to pay their bills. They may think that they are able to pay down their debts but, for many people, if over half their income is going toward debt, and it doesn’t seem like the situation will be resolved in five years, then it may be time to consider filing for bankruptcy.
Of course, filing for bankruptcy will impact one’s credit score. However, once the bankruptcy process is complete, a person can start taking measures to improve their credit. After all, bankruptcy gives them the chance to start over, rather than having their credit scores further impacted by unpaid bills.
As you can see, while the word “bankruptcy” may have a bad reputation, this reputation is undeserved. Filing for bankruptcy is often the responsible thing to do, and the best way to resolve your debts so you can move forward on the right financial foot.
Source: time.com, “5 Bankruptcy Myths You Shouldn’t Believe,” Sean Pyles, June 13, 2016