Bankruptcy can be the best solution or the last resort for many Americans in the midst of personal economic turmoil. With mounting debt and few options to get out from under the pile of bills, some turn towards personal bankruptcy as a way out. Unfortunately, there are some myths surrounding bankruptcy that may incorrectly discourage those in financial trouble from taking the proper steps to protect their finances. To make educated financial decisions, consumers must separate fact from fiction in the bankruptcy process. Below are some bankruptcy myths of which you should be aware.

Myth: Creditors Will Take Everything If I file

Fact: Most people filing for bankruptcy lose very little, if anything at all. According to, certain assets such as homes, cars, money in certain retirement plans, household goods and clothing can be protected from collection.  In addition, vehicles and homes with liens can be kept as long as the owner continues to keep the account in a current status or reaffirm the debt with that creditor.

Myth: Filing Bankruptcy Will Not Affect Your Spouse’s Credit

Fact: If there are accounts that are in both names, the bankruptcy will the credit of both spouses. The reverse is also true, where the non-filing spouse is not on the filing spouses accounts, so in that case the non-filing spouses credit will not be affected.

Myth: All Debt Can Be Erased With Bankruptcy

Fact:  Not exactly. Unsecured debt, for example, medical bills, credit cards and unsecured loans can be discharged with bankruptcy but debt resulting from child support, alimony, student loans, court-ordered restitution or taxes will not be eliminated through bankruptcy and will require continued payment. Although there has been some, debate as to whether certain student loans should be discharged in a Chapter 7 bankruptcy.

Myth: Bankruptcy Will Prevent Any Credit Score Improvements for Ten Years

Fact:  Despite the fact that creditors will see the bankruptcy as part of the consumer,’s credit profile for ten years it is not impossible to improve your credit score and re-establish credit. In some circumstances within 2 years of the bankruptcy discharge, the consumer can begin to get offers for credit cards to re-establish credit but be aware; they are often from subprime lenders with exorbitant interest rates.   

Myth: Not All Debts Need To Be Listed When Filing For Bankruptcy

Fact: All debts must be included, including personal debt. A person cannot choose which accounts to disclose, everything must be disclosed in the bankruptcy schedules; however, it is not prohibited to keep paying on a debt you want to keep.

Myth: Bankruptcy Is For Losers

Fact: Most people file for bankruptcy after a life-changing event such as a divorce, the death of a spouse, a medical emergency or the loss of a job. In this economy loss of a job as propelled an increase in personal bankruptcies over the last few years. Often times the situation is beyond their control and bankruptcy is a final effort to regain control over their finances.

Myth: A Consumer Can Only File For Bankruptcy Once

Fact: A consumer can file for Chapter 7 bankruptcy once every eight years, as this type of bankruptcy is liquidation of assets (if any) and discharge of unsecured debt. A Chapter 13 bankruptcy, however, can be filed more frequently. Chapter 13 is an “adjustment of debts” and provides the consumer the opportunity to repay delinquent debts based upon a predetermined schedule (a Chapter 13 plan). Overall, filing multiple bankruptcies is strongly discouraged by nearly every financial expert as it could reflect as bad faith on your part. In filing Chapter 13, you should be aware if your first case dismisses and you file another Chapter 13 within a year the stay is only in effect for 30 days. If that case gets dismissed and you file another one within a year there is no stay in effect unless your bankruptcy attorney  files either a Motion to Impose the Stay or Motion to Extend the Stay, in either case your creditors have the right to object.

Bankruptcy is an unfortunate reality for many people especially now and in some instances, it is the best option for debt management. Understanding how bankruptcy will affect your short- and long-term financial goals is critical. Bankruptcy lawyers can help assess your personal finances and advise the best course of action based on your individual circumstances. Contact an experienced bankruptcy attorney if you are thinking about filing bankruptcy.