Before you file for bankruptcy, it is important to educate yourself on the bankruptcy myths and facts of the law. As with many types of law, there are a lot of misconceptions of the bankruptcy process that are exaggerated or simply not true, such as images of people repossessing all of someone’s belongings. Before making this life-changing decision, it is essential to discern facts and misinformation.

While a bankruptcy filing is often the right move for people who have accumulated steep credit card debts or debts through personal loans, it is not necessarily the best move for everyone. Understanding how the process works and what debts it can alleviate is vital to determining the best course of action.

Understanding the Bankruptcy Myths And Facts

Myth: All of your debts will be wiped clean.

Fact: Bankruptcy will absolve certain types of debts. However, some debts that are considered dischargeable and will not be affected by a bankruptcy filing are debts related to child custody, taxes, or student loans. Debts that can typically be discharged (eliminated) are debts that have accumulated in the form of credit card debts, medical debts, or personal loans.

Myth: You will lose all your possessions.

Fact: Most people can hold onto most of their personal belongings. People can declare assets as essential to their everyday lives and this might help in protecting those assets from repossession. What’s important to understand about most of your assets, however, is that creditors don’t want to collect them. Most of the stereotypes revolving around bankruptcy are in cases where people have a lot of possessions of really high worth such as expensive art or a high-end luxury car. Normal vehicles and everyday items that most people own, like your computer or t.v., will generally not be repossessed.

Myth: It is not necessary to hire a bankruptcy lawyer.

Fact: While it is technically true that you will not be legally required to hire a bankruptcy lawyer, hiring or seeking the advice of a bankruptcy lawyer is highly recommended. A lawyer can make sure that all dischargeable debts have been included in the filing, that your payment plan is appropriate to your financial situation, and that other financial interests are protected. Additionally, a lawyer will help you expedite the lengthy paperwork process required for filing, and ensure that your claim is followed in accordance with the legal nuances of the law.

Myth: Bankruptcy is always the right choice for people with accumulated debts.

Fact: While bankruptcy can help many people regain financial control over their lives, it is not the best choice for everyone in debt. A bankruptcy filing will have consequences that will alter your life, so you will want to ensure that it is in your best interests prior to filing. For people who realize that it is not the best choice for them, bankruptcy attorneys and credit counselors can offer guidance on your next best steps.

What happens when you file bankruptcy?

3 red toned books full of bankruptcy myths and facts sit on a table

What happens after the bankruptcy filing depends on what type of bankruptcy you file. A Chapter 7 Bankruptcy filing is the most common, but the best choice for you depends on your unique financial situation. The types of bankruptcy are:

Chapter 7 Bankruptcy: This is considered the “fresh start” bankruptcy. 

Chapter 13 Bankruptcy: This is the “payment plan” bankruptcy. You and your attorney create a 3 to 5 year plan to pay back a percentage of your defaulted debt as possible while still maintaining a nominal quality of life.

Chapter 20 Bankruptcy: An unofficial term that indicates filing for a Chapter 7 bankruptcy followed by filing for a Chapter 13 bankruptcy, thus handling dischargeable debts followed by dealing with continuing liens.

Chapter 11 Bankruptcy: This is reserved for businesses and handles the restructuring of the company.
For more advice on bankruptcy myths and facts, or to learn what happens when you file bankruptcy, feel free to contact our offices in Chicago. Schottler Law is experienced with assisting clients with their bankruptcy filings and offering guidance through the stressful process. Schedule a free consultation today.

Mark Schottler is a Chicagoland attorney with over 20 years of experience working both in probate and estate planning law and in real estate law. He puts his extensive knowledge on these subjects into easily consumable articles that will help and advise the public. Mark Schottler has a passion for probate and uses this to create relevant articles that are informative and entertaining. *While these posts may detail general legal issues, it is not legal advice. Use of this site does not create an attorney-client relationship.