Over the years, the perception of bankruptcy in the eyes of the public has changed in no small way. For decades, it was considered to be the very height of public shame, to have gone bust and failed to service one’s debts. More recently, the picture has improved and the idea of going bankrupt is now seen by many as an agreeable way to fix a debt problem once and for all.
In truth, the reality is probably somewhere in-between. It’s not true that going bankrupt reveals some deeply-held flaw or weakness, but neither is it the case that it’s a way to skip out on consequences. Below, we’ll look at a few of the myths and realities to see what’s really the case.
Myth #1: You Might as Well Spend if You Know You’re About to File – It’s Consequence-Free!
REALITY: While bankruptcy leads to much of your debt being forgiven, it’s rare that it means you won’t need to pay a penny – and if you spend in an accelerated way ahead of your filing, it won’t work out well for you. Yes, Chapter 7 bankruptcy does discharge credit card debt, but racking up charges before you file is considered fraud; any debt that you incur as a result is not discharged, so it’s not a good idea to test the courts.
Myth #2: If You Go Bankrupt, Then Your Spouse Will Also Have to File
REALITY: If you have separate finances, then there is no reason that your debt need affect your spouse in any way other than their concern for you. Any debt that is in your name alone will be dealt with as part of your filing, so if your spouse is not named on any affected accounts, they don’t need to file. However, if you have shared debt and only one of you files, the creditor can – and will – pursue the non-filing spouse for payment in full.
Myth #3: Bankruptcy Will Mean an End to Your Debt Worries
REALITY: There is no doubt that bankruptcy allows you to wipe much of the slate clean, but the detail of your filing is vitally important. Some secured debt is likely to have been exempted from your filing, and you need to consider all of your creditors. It’s worth going over the details with experts like Anchor Law Firm and being honest about all the debt you hold. You’re going to struggle to get credit for the near-term future, so it is best to make sure that you cover all of your eligible debt in the filing – otherwise it can come back to haunt you.
Myth#4: You Can File for Bankruptcy Whenever You Run up Debt
While some people might see the process of bankruptcy as a reset button that allows them to repeat their old habits, this can end up coming back to sting you if you try it out. Chapter 7 bankruptcy will forgive your debt in the moment, but once declared, you cannot file again for eight years. If you do file at that point, it can be ruinous to your financial standing and retirement saving, so don’t treat it like an eraser. Bankruptcy does have consequences, and only the very fortunate can dodge them.