5 Bankruptcy Myths You Need To Know
Bankruptcy, that word which seemingly spells doom and gloom for many, carries a few harsh truths and forces one to make lifestyle changes. But contrary to popular belief, it doesn't signify the end. Rather, it's the beginning of a new path, one that, hopefully, teaches a person how to manage his finances better.
When to file for bankruptcy
Declaring bankruptcy is a big decision and one that shouldn't be taken lightly. There are other recourses to try and only if they've failed should you consider filing. Warning signs include being unable to negotiate a repayment plan with your creditors and having liabilities exceed your assets. For example, you owe creditors $300,000 with the monthly debt service totaling $3,000 but your assets add up to just $70,000. You take home $2,000 every month in wages. It's not difficult to see that you may not be able to repay your debt without help in which case you may consider filing for bankruptcy.
Alternatives to bankruptcy aim to get you on the path to proper financial management. Debt consolidation is one where you borrow money (you should be able to qualify for a loan) to consolidate all your loans. Debt settlement is another where you negotiate with creditors so you repay less than what you owe. There are other avenues, just read up to know if they can help.
The myths:
All debts are discharged – This isn't true because certain debts must be paid. Restitution, alimony, child support etc. are some payments you have to make. Of course, most of what you owe will be discharged but not all of it.
Bankruptcy is the answer to debt problems – Again, this isn't true. When filing for bankruptcy, there are conditions put in place to protect creditors. You may lose your property, you may have to keep making payments every month, and you have to pay for the process. Prior to filing, you'll have to attend credit counselling – which you must pay for – where you'll be given options to repay your debts. The final decision is up to you but counselors will advise trying to work things out with creditors.
Loans can't be sought anymore – Loans can be applied for but not immediately after filing for bankruptcy. This 'waiting' period is used to repay your debt. Once you've cleared what you need to, you can get to work rebuilding your credit rating. In time, you'll be able to qualify for a loan.
Your credit will be ruined – Bankruptcy does ruin your credit rating but not or life. Once you start repaying all or most of your debts you'll see it slowly climb. It'll take time but you'll be well on your way to having a solid credit rating.
Bankruptcy means you're financially irresponsible – It's true, many who file for bankruptcy aren't the best with money but for the rest, life changes are typically responsible. Divorce, a death and losing a job are common reasons. The high cost of healthcare following a serious illness is another. There are many and more similar reasons that could force just about anyone to file for bankruptcy.
Even if you're nowhere near bankruptcy, it pays to learn how to manage finances. Attend a financial management course, many of which are provided free online. You'll learn a lot and will, hopefully, be able to use that knowledge to your advantage.
When to file for bankruptcy
Declaring bankruptcy is a big decision and one that shouldn't be taken lightly. There are other recourses to try and only if they've failed should you consider filing. Warning signs include being unable to negotiate a repayment plan with your creditors and having liabilities exceed your assets. For example, you owe creditors $300,000 with the monthly debt service totaling $3,000 but your assets add up to just $70,000. You take home $2,000 every month in wages. It's not difficult to see that you may not be able to repay your debt without help in which case you may consider filing for bankruptcy.
Alternatives to bankruptcy aim to get you on the path to proper financial management. Debt consolidation is one where you borrow money (you should be able to qualify for a loan) to consolidate all your loans. Debt settlement is another where you negotiate with creditors so you repay less than what you owe. There are other avenues, just read up to know if they can help.
The myths:
All debts are discharged – This isn't true because certain debts must be paid. Restitution, alimony, child support etc. are some payments you have to make. Of course, most of what you owe will be discharged but not all of it.
Bankruptcy is the answer to debt problems – Again, this isn't true. When filing for bankruptcy, there are conditions put in place to protect creditors. You may lose your property, you may have to keep making payments every month, and you have to pay for the process. Prior to filing, you'll have to attend credit counselling – which you must pay for – where you'll be given options to repay your debts. The final decision is up to you but counselors will advise trying to work things out with creditors.
Loans can't be sought anymore – Loans can be applied for but not immediately after filing for bankruptcy. This 'waiting' period is used to repay your debt. Once you've cleared what you need to, you can get to work rebuilding your credit rating. In time, you'll be able to qualify for a loan.
Your credit will be ruined – Bankruptcy does ruin your credit rating but not or life. Once you start repaying all or most of your debts you'll see it slowly climb. It'll take time but you'll be well on your way to having a solid credit rating.
Bankruptcy means you're financially irresponsible – It's true, many who file for bankruptcy aren't the best with money but for the rest, life changes are typically responsible. Divorce, a death and losing a job are common reasons. The high cost of healthcare following a serious illness is another. There are many and more similar reasons that could force just about anyone to file for bankruptcy.
Even if you're nowhere near bankruptcy, it pays to learn how to manage finances. Attend a financial management course, many of which are provided free online. You'll learn a lot and will, hopefully, be able to use that knowledge to your advantage.
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