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Debunking 3 common myths about bankruptcy

If you file for bankruptcy, you’ll lose all of your valuable possessions. If you file for bankruptcy, you are considered a failure. If you file for bankruptcy, your financial future will be ruined.

These are just three of the many misconceptions about bankruptcy. Despite their inaccuracy, many people continue to believe them. Let’s take a look at the actual facts behind these three common bankruptcy myths.

You will lose your possessions

There remains a persistent myth that filing for bankruptcy means that your personal property will be repossessed and you will be left empty-handed. Most bankruptcy cases include what are called exemptions, or assets that the debtor gets to keep. In fact, the majority of people who file for bankruptcy will not have to turn over any of their possessions. Rather than giving up their valuables, many filers are able to incorporate the value of their assets into their repayment plans. 

Bankruptcy is a form of failure

One of the most enduring myths about bankruptcy is that filing for bankruptcy is a sign of personal failure. Declaring bankruptcy is actually a very smart choice for people who are in dire financial straits. People file for bankruptcy for many different reasons. Yes, there are some instances in which people file for bankruptcy because of irresponsible spending, but many other cases are the result of medical debt, student loans or losing a job. 

Your future will be ruined

Many people who are considering bankruptcy fear that it will irreparably damage their financial future. The key to debunking this myth is to think of bankruptcy as a fresh start. There will be some limitations to face—for example, paying higher interest rates for the seven to 10 years that your credit report includes your bankruptcy. But after emerging from the process of declaring bankruptcy, filers will someday be able to get credit cards, take out loans and buy a home.