Bankruptcy is a difficult and important decision for those facing financial struggles. Unfortunately, there are plenty of lingering myths out there that may perpetuate the hesitancy some people face in moving forward with their bankruptcy case. While this blog will discuss other myths from time to time, this post addresses and debunks three common bankruptcy myths.
Bankruptcy is the result of financial irresponsibility.
Hardly. Some filers might be guilty of this, but the majority of people who wind up in serious financial hardship never intended to do so, and some may have once had a good handle on their finances. Most people file for bankruptcy as the result of long-term unemployment, divorce, accident or illness, or some other unexpected event.
Bankruptcy wipes out all debt.
No. Whether or not a debt is discharged or reorganized depends on the type of bankruptcy case filed. It is true that in Chapter 7, you can have almost any type of debt discharged more easily than other types of bankruptcy. However, one thing all bankruptcies have in common is the fact that certain debts are not 100% dischargeable. While some student loan and tax debts are discharged, the majority are not. And any alimony or child support obligations will not be consider as a part of your case.
It is a good idea to run up debt prior to filing bankruptcy because you will not have to pay the debt.
Actually, no. If you intentionally go out and max out a credit card, or run up debt in any other way, knowing you are going to file bankruptcy, the court will consider this fraud and you will still be held liable for the debt.