If you are considering filing for bankruptcy, but are hesitant due to stereotypes?
People Who File for Bankruptcy Are Financially Irresponsible
When it comes to bankruptcy, one of the most common stereotypes is that people who file for bankruptcy are financially irresponsible. The reality is that bankruptcy is often a result of unforeseen circumstances and financial hardship rather than a lack of financial responsibility.
Medical care is a common reason people find themselves filing for bankruptcy. In the United States, where healthcare costs can be exorbitant, a medical emergency or a chronic illness can quickly lead to overwhelming debt. This has nothing to do with a lack of financial responsibility but rather the high costs associated with medical treatments and care.
The bankruptcy process itself is not an easy one to go through. It involves complex legal procedures and requires individuals to disclose their financial information, credit scores, and credit card debt. Filing for bankruptcy is not a decision that is made lightly; it is often a last resort for individuals who have explored other options and are facing insurmountable debt.
Filing for bankruptcy is not a quick fix that allows individuals to wipe away their debts and start fresh. Depending on the type of bankruptcy filed, it can take several years for the process to be completed. During this time, individuals are required to adhere to strict financial guidelines, and their finances are closely monitored.
Another misconception is that bankruptcy is a result of living beyond one’s means. While this may be the case for some individuals, in many situations, bankruptcy is caused by external factors such as job loss, divorce, or the financial crash of a business.
Unexpected life events can have a significant impact on an individual’s financial stability, often leaving them with no choice but to seek bankruptcy protection.
Individual filings increased 16% to 33,755 in July 2023 from the 29,241 filed in July 2022. [1]
Filing Bankruptcy Will Ruin Your Credit Forever
Bankruptcy may remain on your credit report for a period of 7 to 10 years, depending on the type of bankruptcy filed. While this may seem like a long time, it is not an eternity, and there are steps you can take to start rebuilding your credit even during this period.
As you work towards rebuilding your financial life, take proactive steps to improve your credit score.
- Develop a Financial Action Plan: Take charge of your financial future by creating a realistic budget and sticking to it. Demonstrate responsible financial behavior by paying your bills on time and in full.
- Community Action: Explore organizations and resources in your community that provide financial counseling and education. These programs can help you improve your financial literacy and provide personalized guidance tailored to your specific situation.
- Establish New Credit: While it may seem counterintuitive, obtaining new credit after bankruptcy can actually help rebuild your credit score. Start by applying for a secured credit card or becoming an authorized user on someone else's account. Use this new credit responsibly by making small purchases and paying the balance in full each month.
- Monitor Your Credit: Keep a close eye on your credit report to ensure accuracy and identify any discrepancies. Regularly review your credit report to track your progress and address any potential issues that may arise.
Bankruptcy Discharges All Debt
Types of debt that bankruptcy cannot discharge:
- Secured Debts: Bankruptcy cannot discharge debts secured by collateral, such as mortgages or car loans. These loans are tied to physical assets that can be repossessed by creditors if payments are not made.
- Non-dischargeable Debts: Certain debts, such as alimony, child support, student loans (in most cases), and recent income tax obligations, generally cannot be discharged through bankruptcy.
- Fraudulent or Criminal Debts: If a debt was incurred through fraudulent activities or as a result of criminal behavior, such as fines or restitution, bankruptcy will not discharge those obligations.
- Debts Incurred After Filing: Any debts acquired after filing for bankruptcy will not be discharged. It's important to continue to fulfill financial obligations and seek alternative solutions for managing new debts responsibly.
Types of Debt that Bankruptcy Can Discharge:
- Credit Card Debt: Unsecured debts, such as credit card debt, can typically be discharged through bankruptcy, allowing individuals to alleviate their financial burden and move forward.
- Medical Bills: The high cost of medical care can sometimes lead to overwhelming debt. Bankruptcy can provide relief by discharging medical bills, offering individuals the opportunity to regain financial stability.
More than 40% of US survey respondents are currently in debt due to medical bills. [2]
- Personal Loans: Non-collateralized personal loans can often be discharged through bankruptcy, helping individuals who are struggling with unmanageable debt resulting from these loans.
Everyone Will Know You Filed for Bankruptcy
Bankruptcy proceedings are legal processes that are designed to help individuals or businesses overcome financial hardships. They are typically handled through the federal court system and are a part of public records. This means that while the filing itself is not private, it is unlikely that anyone you know will stumble upon this information unless they actively search for it.
In general, bankruptcy filings are not published in local newspapers or announced on social media platforms. Unless someone has a specific reason to search for your bankruptcy filing, such as being a creditor or conducting a background check, it is doubtful that they will discover this information.
Bankruptcy is a tool for financial recovery. It is not a mark of failure or incompetence. Many successful individuals and businesses have gone through the bankruptcy process and come out stronger on the other side.
It is a practical solution for dealing with overwhelming debt and getting a fresh start.
You'll Lose Everything in Bankruptcy
The bankruptcy process includes exemptions that safeguard certain assets from being liquidated to repay debts. These exemptions vary from state to state but commonly cover essentials like your primary residence, vehicle, household goods, retirement accounts, and more. It ensures that you have the means to maintain a reasonable standard of living during and after bankruptcy.
Many individuals who file for bankruptcy see their credit rating improve over time. Once you’ve completed the bankruptcy process, you have the opportunity to start fresh and rebuild your credit.
Working with a knowledgeable bankruptcy attorney can help you navigate the exemption planning process. They can strategically structure your assets and finances to protect as much property as possible under the law. Leveraging their expertise, you can ensure that your most important assets are safeguarded during bankruptcy proceedings.
Bankruptcy doesn’t necessarily mean losing all of your income. Individuals can continue earning additional income even while undergoing bankruptcy. Certain sources, such as child support, Social Security benefits, or government assistance, are typically protected from seizure. This can provide a valuable financial lifeline during a challenging period.
It's Hard to File for Bankruptcy
While bankruptcy is a legal process that involves navigating complex laws and procedures, it does not mean that it is difficult to file for bankruptcy.
Hiring an experienced bankruptcy attorney can help streamline the process and guide you through each step. They will handle the paperwork, represent you in court if necessary, and ensure that your rights are protected throughout the process.
Filing for bankruptcy is not as hard as it is often perceived to be. It is a legal process that provides individuals and businesses with a chance to regain control over their finances and start afresh. By dispelling these common bankruptcy stereotypes, we hope to encourage individuals facing financial hardships to consider bankruptcy as a potential solution to their financial troubles.
If you’re feeling overwhelmed by debt and unsure of your options, our team of experienced bankruptcy lawyers at Richard West Law Office can provide you with the clarity and peace of mind you need.
Contact Richard West Law Office today to schedule a consultation.
Sources:
[1] Bankruptcy Statistics | ABI. (n.d.). https://www.abi.org/newsroom/bankruptcy-statistics
[2] Kuadli, J. (2023, May 20). 9 Mind-Blowing Bankruptcy Statistics for 2023. https://legaljobs.io/blog/bankruptcy-statistics/
