Many myths about bankruptcy exist that may deter those in extreme debt from following through with the filing process.
Both Chapter 7 and Chapter 13 bankruptcy are legal processes designed to help people regain financial freedom. According to the Federal Trade Commission, Chapter 7 bankruptcy involves selling nonexempt assets to pay back creditors while Chapter 13 bankruptcy involves using future income to pay off debts within a three to five-year period. Although both of these options are viable debt relief options for many people in Mississippi, some are hesitant to move forward with filing because of some of the myths that surround the bankruptcy process.
1. All debt can be discharged in bankruptcy
Many people decide to file bankruptcy with hope they will be able to obtain a fresh financial start. However, not every type of debt can be discharged during the bankruptcy process. For example, domestic support obligations, like child support and alimony, cannot be discharged. Additionally, restitution owed because of a crime committed cannot be removed by filing bankruptcy.
2. Only the financially irresponsible file bankruptcy
Financial problems can befall anyone and in most cases, those who file bankruptcy choose to do so after a trying life event that affects their finances. For instance, those who go through a divorce and have to manage running a household on one income instead of two may find themselves struggling with significant debt. Or, in other cases, those who suffer a serious illness or find themselves unemployed for an extended period of time may rely on debt to manage life’s basic expenses.
3. The bankruptcy process permanently ruins credit
Although bankruptcy can have an impact on a person’s credit score, many filers are surprised by how quickly they are able to rebuild their credit following the filing process. It is recommended that immediately after filing, those who went through bankruptcy obtain a secured credit card and use it to make regular, on-time payments.
4. Money spent right before filing can be absolved
Some people assume that if they spend without abandon right before they file bankruptcy, the debts they take on will be discharged during the process. However, doing this is considered fraud, and the court system will not remove debt that is considered fraudulent.
In addition to these common myths, there are many other misconceptions about bankruptcy that may deter people in Mississippi from filing. Those who are overwhelmed by debt, but are unsure of whether filing bankruptcy is a viable option for them should consult with an attorney who can answer their questions and provide legal guidance.