Common Bankruptcy Myths
Sept. 2, 2021
If you live in Northeastern Tennessee and are considering bankruptcy for financial relief, you are not alone. In 2020, there were over 8,333 bankruptcy filings in the state. Despite lower bankruptcy filings than previous years, Tennessee still stands at 94% above average when it comes to bankruptcy cases.
Despite these numbers, many people hesitate to explore bankruptcy as an option to eliminate debt. Common bankruptcy myths paint a false picture of how the process works. It is helpful to explore these myths to better understand how bankruptcy can give you a fresh start when you work with a knowledgeable bankruptcy attorney in Kingsport, Tennessee.
1. Bankruptcy Permanently Ruins Your Credit
The myth that bankruptcy permanently ruins your credit is false. Bankruptcy does affect your credit, but not forever.
In fact, many people's credit score goes up after they get a bankruptcy discharge. Why? Because they no longer owe the debts that got discharged. That means they no longer have the drag of the old debts on their credit score. It also lowers their debt to income ratio, which is attractive to potential lenders.
It is true, Chapter 7 bankruptcy will remain on your credit report for ten years. Chapter 13 bankruptcy will be on your credit report for seven years. This can negatively impact your ability to be approved for a credit card or bank loan during this time, but you may still find opportunities to be approved for small amounts of credit. Use these opportunities to build back your credit while you wait for the bankruptcy to fall off your credit report.
2. Bankruptcy Means You
are Financially Irresponsible
One of the biggest and most damaging myths about bankruptcy is that those who file are financially irresponsible or have failed somehow. This is untrue and causes undue shame when you find yourself in a tough financial situation.
The most common causes for bankruptcy in Northeastern Tennessee are unforeseeable or uncontrollable life events. These include:
Loss of employment
Expenses due to natural disasters such as tornadoes or floods
Divorce and separation
Poor financial literacy/education
Whatever your reason for filing for bankruptcy, there is no shame in choosing the best financial option available to eliminate debt and repair your financial situation.
3. You Lose All Your Possessions
Contrary to popular belief, when you file for bankruptcy, you do not lose all your possessions. As part of the process, your bankruptcy lawyer will thoroughly assess your debts and determine what to include in the discharge paperwork and what can be exempted.
Both Chapter 7 and Chapter 13 bankruptcies allow for exemptions. Most people can keep their houses, vehicles, clothes, furniture, and other important possessions. Each situation is unique, but it is important to understand that just because you file for bankruptcy doesn’t mean that your creditors are entitled to everything you own.
I can tell you that none of my Chapter 7 clients have ever lost their houses. Further, none of my Chapter 13 clients who completed their plans have lost their houses.
4. Bankruptcy Doesn't Discharge Medical Debt
Bankruptcy does discharge medical debt. In fact bankruptcy discharges all debts, except domestic support obligations (which is just a fancy way of saying child support and alimony) and debts incurred as a result of driving under the influence. This is true although there are some types of debts that are very difficult to discharge. The way debts are handled and which debts are discharged depends on whether you file a Chapter 7 or a Chapter 13.
Under Chapter 13, you will pay back all or a part of your debt under a payment plan proposed by you and approved by a judge. The payment is based upon your ability to pay. You are allowed to keep your assets and property during this time. Your debt may be reduced as part of the consolidation process. Once you complete your Chapter 13 plan, the remaining dischargable debts will be discharged.
Under Chapter 7, you will be able to discharge most of your unsecured debt, such as credit cards, medical bills, or personal loans. Secured debts get discharged but the liens remain so in order to keep the property you will have to pay the debt.
Debts that are difficult to discharge discharge include:
Fines, costs and other criminal penalties
Unsecured debt that you did not list on your bankruptcy paperwork
5. Debt Consolidation is a Better Option
Debt consolidation is a good option for very few people. The best debt consolidation plan I know of is a Chapter 13 plan. There are a lot of reasons why the services offered by the debt consolidation companies and other debt relief companies are a bad idea. I do not have space to go into all of those at this time. The primary one is, debt consolidation companies are known for predatory practices. These companies exist to make a profit, not relieve financial stress. The better option is to work within the legal system with a knowledgeable attorney to ensure you aren’t taken advantage of.
Working With a Bankruptcy Attorney
When you file bankruptcy in Northeast Tennessee, it is vital that you work with an experienced bankruptcy attorney who knows the process. Attorney Steven C. Frazier has the experience you can trust to help you file your bankruptcy. He will help you assess your financial situation and decide what type of bankruptcy is right for you.
Schedule a Free Bankruptcy Strategy Session Today
Bankruptcy can be a helpful tool in relieving crushing debt. If you live in Bristol, Johnson City, Church Hill, Kingsport or anywhere in Northeast Tennessee, attorney Steven C. Frazier is ready to help you through the bankruptcy process. He has over 40 years of experience and can help you file quickly and efficiently so you can get the relief you need and move on to the next step in your life. Schedule a free Bankruptcy strategy session with Attorney Frazier to get a better idea of how bankruptcy can help you find a path forward.