Filing bankruptcy is not an easy decision. It’s often surrounded by months and even years of financial difficulty. Yet filing creates many unknowns and fears about the future, such as:

There are many myths about personal bankruptcy. But separating the myths from the truth is helpful for making the best decisions about your future.

Myth No. 1: People filing for bankruptcy are financially irresponsible. The fact is that the majority of bankruptcies are not caused by reckless spending but rather by serious financial hardship. In fact, the top reasons for bankruptcy include job loss, illness and going through a divorce.

Myth No. 2: Bankruptcy will get rid of all past debts. There are some assets that are exempt from bankruptcy relief, such as alimony and child support, and some types of student loans. Make sure you understand which debts are exempt from the proceedings.

Myth No. 3: Filing bankruptcy will result in the loss of your home. If you have significant assets — such as a house and a vehicle — your attorney may recommend Chapter 13 bankruptcy. This would allow you to keep these assets and set up a payment plan.

Myth No. 4: You will lose your 401(k) or retirement accounts. Certain assets, such as retirement accounts, are exempt from bankruptcy proceedings. However, if you take money from those accounts before filing, those assets will not be exempt.

Myth No. 5: Bankruptcy will ruin your credit. It’s true that your credit will suffer in the short term, but over time it can get better. In fact, many people are surprised by how quickly they start receiving credit card offers in the mail. Start by getting a secured credit card and making regular payments. After about a year, you may be able to get a regular credit card.

Myth No. 6: You can file bankruptcy only once. There are limits on how many times you can file bankruptcy; however, people can file more than once. For example, for Chapter 7 relief, you must not have filed for Chapter 7 bankruptcy in the past eight years.

Bankruptcy is a major financial disruption, but in some cases it’s the best way forward. If you have questions or would like more information, please contact us at 914-946-2889 for a free consultation.

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