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5 bankruptcy myths and misconceptions

As debt racks up, you spend more and more time thinking about bankruptcy. You know that something has to happen, and soon.

The problem is that you have heard a lot of bankruptcy myths over the years. You do not feel confident about how the process works. You know you have to learn more before you file.

To help, here are five of the main myths and misconceptions:

1. Bankruptcy completely destroys your financial future

It does not. It does lower your credit score -- but so does the debt you have without bankruptcy, so you are already going to see a hit there. Plus, you can rebuild your score. With careful planning and dedication, you can get it high enough for mortgage loans, credit cards and the like. Your financial future does not end with bankruptcy.

2. You have failed on a personal level if you file

People really get caught up in this. Whom do you feel guilty about failing? The billion-dollar credit card company that will not get a few thousand of your dollars? Bankruptcy is a viable legal option, not a failure. Do not worry so much about bankruptcy's perceived stigma what other people think.

3. It's always smarter to pay what you owe

Not always. It depends how much debt you have. If you will struggle to pay for years on end, cutting your budget to the bare bones and still accumulating more debt through interest, is that really the smartest move? You cannot always control why you have to file for bankruptcy. Perhaps your debt was affordable before you lost your job. Paying may no longer be possible.

4. You will get rid of every single one of your debts

Unfortunately, not all debts get discharged in bankruptcy. Most of the time, tax debts remain, for example. The same is true for most student loan debts. There are exceptions to every rule, but do not assume that 100 percent of your debts qualify. Each person who files has a unique situation.

5. Bankruptcy takes all of your assets

It does not. Chapter 7, or liquidation bankruptcy, does mean you sell some assets to pay off your lenders. But you do have many exemptions you can utilize. Often, exemptions can help you keep the things you need for daily life, such as your car, your home or the tools of your trade. Bankruptcy is not intended to leave you with nothing; if it was, how would that be any better than staying in debt?

Misconceptions about bankruptcy get repeated over and over. Do not buy into them. Make sure you really understand your options and how the process works.

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Jackson, MS 39216

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