5 Myths About Bankruptcy Info that We Wish We’re Gone
We are all familiar with bankruptcy. It’s an ominous word that hits hard not only because of the letter it starts with, but also what it could mean for your finances. And if you know a couple or a business that has gone bankrupt, you probably do your best to stay away from it even if it seems like the only way out of a financial prison. However, many folks should question their knowledge of bankruptcy info on the assumption that they’re listening to what family and friends have told them. Why? Because most people get it wrong. The majority of individuals, whether they have financial trouble or not, see it with a skewed view. The result of these misguided perceptions has led to a series of bankruptcy myths that we need to debunk.
1. It’s a quick fix
Some people think that bankruptcy is a straightforward path out of debt troubles. They’re wrong. It’s more like a winding path that climbs uphill and downhill before levelling out into a road that’s easy to travel. For starters, bankruptcy takes a toll on your credit profile. It’s visible to credit reporting agencies for 6 years, making it tough for you to qualify for any kind of loan, or transaction that requires a healthy credit score. Generally, you’ll have to work with lenders who charge high interests rates. There’s also the emotional side of things. It’s often difficult to tell family members or friends about a bankruptcy due to what it implies – a sense of irresponsibility – even if your situation is beyond your control.
2. It’s the only way out
Bankruptcy can seem like a doctor’s recommendation for surgery. For a patient suffering with a painful disease, a risky operation may seem like the only option for this individual to see relief. Yet we all know that it isn’t always the case. The same goes for bankruptcy. Even when an individual or a family faces massive debts, which keep piling on beyond what they can fix, bankruptcy may not be their only choice. Sometimes, what’s needed is to view their circumstances from a different angle. Debt counselling programs can help a struggling couple gain insight and proper perspective on how to reduce their debt. More immediate options such as the refinancing of a mortgage or debt consolidation may also be on on the table as well – tools that make it possible to turn financial troubles around for best. Bankruptcy, however, is a dead end.
3. It means no more debt
Another major misconception with bankruptcy is the assumption that it will mean you’re debt-free. Going bankrupt doesn’t mean you’ll have clean slate. You will still have to pay a predetermined amount of money to your trustee on a monthly basis. The money they receive from you is then distributed to your creditors. It’s important to remember this for a couple of reasons. First of all, if you happen to receive a raise at work or win the lottery, your payments will be reviewed based on the extra money you’re now earning. Secondly, bankruptcy doesn’t cancel your obligation to pay outstanding debts, such as student loans or court fines.
4. It means no more credit
One positive aspect of bankruptcy is the opportunity to rebuild your credit. You see, there’s the misconception that going bankrupt means never having credit again. But that’s not true. Yes, you will have to start from scratch, working to improve your score over time, but at least you’re not doomed to have poor credit for the rest of your life. In fact, many people have made great “recoveries”. Far before the six-year period is over, you can apply for some loans, such as auto financing. You can look at bankruptcy as an injury that leaves you sidelined – the goal is to focus on healing your damaged credit by making timely payments to demonstrate your reliability. In fact, a loan designed for those with bad credit is helpful to getting you back on track.
5. It will make me lose everything
Although bankruptcy is far from an ideal option, there are some who think it leads to the absolute worse outcomes. Again, this is untrue. You’ll have to downsize, but the situation isn’t like a foreclosure where the bank will strip you of your possessions. You can still keep a decently-priced vehicle (most provinces will allow this), and essential equipment, such as medical devices or job-related tools, provided they’re not too costly. The key takeaway here is modesty. You can still carry out your usual routine as long as it’s within a limit that reflects your financial standing. Ultimately, you can make certain items work for you in the effort to rebuild your credit, especially if you can finance them.
Prepping Your Mind for Bankruptcy
As mentioned earlier, filing for bankruptcy and living through it can trigger emotional stress. And if you were to file for it, learning to have cope is important. That’s why financial experts warn about choosing bankruptcy too early, when there are other lifelines out there. Even if you aren’t responsible for your financial problems, you could still battle feelings of guilt, embarrassment and even depression. So it would make sense for someone to approach bankruptcy with a sound mind.
Mind Games: 3 Tips to Cope with Bankruptcy
- Get the right support – It’s easy to tell you to think positively, but it’s hard to do it alone. Having the right people around you makes it much easier to cope with the negative feelings associated with bankruptcy. Don’t hesitate to work with a credit counsellor or financial advisor who can help you develop a strategy to reduce your debt. If you’re under great emotional stress, a therapist along with empathetic friends and family members can give you much comfort.
- Set goals to rebuild credit – Aside from professional help, it’s good for you to create your own “bankruptcy survival plan”. That means setting personal goals that will help you save money, spend within your means, and improve your credit score over time. With that said, there’s nothing wrong with having a professional see these goals – it’s even recommended.
- Remember that is temporary – Ultimately, and arguably hard to do, is reminding yourself that bankruptcy doesn’t last a lifetime. Yes, it stays on record for a lengthy period time, but not forever. Whether you see it or not, the six years it stays on record can be an opportune time to reestablish your good credit, teaching you some vital lessons along the way.
The True Face of Bankruptcy
Bankruptcy is a truly misunderstood aspect of finance. Even people who are deemed as successful in the financial or business worlds don’t have the best insight about bankruptcy info. There are many myths that you’ll hear and see about going bankrupt that’ll be disguised as truth. With that said, it never hurts to ask whether they’re actually true or not. It’s even more important for you to know these things if bankruptcy is something you’re considering. Although it’s not an ideal situation to be in, you’ll help yourself out greatly if you understand how it works and what the circumstances it will bring to you.