Many myths surround consumer bankruptcy, and some of them scare debtors away from filing bankruptcy when it could help.
Many people in New Jersey decide to file consumer bankruptcy after they become overburdened by debt. However, some refrain from finding financial relief through bankruptcy because they have heard intimidating myths about this legal process. Here are some of the most common myths that surround consumer bankruptcy and why they are not true.
1. Paying off the debt is a better option
Some believe that instead of filing bankruptcy, working to pay off debt is the better option. Although filing for bankruptcy is a serious financial decision, it is often the best course of action for people who have debts worth more than 50 percent of their annual income. Those who also have so much debt they cannot see themselves being able to pay it off within a five-year period may also be good candidates for bankruptcy.
2. Only the irresponsible file bankruptcy
A stigma surrounds bankruptcy that only those who cannot handle their money end up in debt and have to file. However, many people end up dealing with excessive debt after the loss of a spouse, divorce, unemployment, a severe illness or another life-changing event that unintentionally harms their finances.
3. Bankruptcy ruins a person's financial future
Those who file bankruptcy are often surprised at how quickly they are able to recover their credit. For those who file bankruptcy and want to boost their credit rating as quickly as possible, a secured credit card is recommended. Once one of these cards is obtained, regular, on-time payments should be made on it. From there, filers may be able to obtain a standard credit card.
4. All debts are discharged during bankruptcy
Some people believe that once they file bankruptcy, all of their former debts will be eliminated. Although bankruptcy does help debtors achieve a fresh financial start, some debts, like alimony payments, restitution owed and child support payments, cannot be removed during the bankruptcy process.
Additionally, those who spend without abandon right before they file bankruptcy will find that these debts are not discharged during the process. Some courts even view this action as a form of fraud.
Contact an attorney
Before filing bankruptcy, those in New Jersey may feel overwhelmed by the myths they have heard about the process and how it will impact their finances in the future. When this occurs, debtors should reach out to an attorney go over their options and to determine if bankruptcy is the right course of action for their personal situation.