Truth or Fiction? Getting to the Bottom of Common Bankruptcy Myths
Bankruptcy is a widely-misunderstood process. While some people would have you believe that the process is simple, painless, and consequence-free, others claim that it’s destructive and will leave you permanently marked as someone who doesn’t pay off their debts. Neither extreme is entirely true. To give yourself a better sense of whether you’re a good candidate to file for bankruptcy, read on and learn the truth about several common myths about the bankruptcy process. Contact an experienced Illinois bankruptcy attorney if you have additional questions.
“Your creditworthiness will be better if you just pay down your debt”
You may have ended up in debt as the result of medical bills, a period of unemployment, or just some bad luck, but in all likelihood, you had every intention of paying off your debts after you accrued them. Unfortunately, this isn’t possible for everyone. You may think that slowly paying down these debts—even when you’re falling more and more behind on your bills—is the “right” way to get out of debt, and that the damage that bankruptcy does to your credit would be more harmful than falling behind on your bills. This is often untrue. While filing for bankruptcy will lower your credit score for a period of time and appear on your credit report for several years, you’re more likely to see your creditworthiness improve steadily after your filing than if you continue making late payments or go into collections on debts you can’t afford to pay.
“You’ll lose the things that mean most to you.”
Perhaps you’ve heard that, if you file for Chapter 7 bankruptcy, the bankruptcy trustee will take all your valuable possessions and sell them in order to pay off your creditors. While the bankruptcy court has the right to seize some items under certain circumstances, the vast majority of Chapter 7 bankruptcy filings are known as no-asset cases—meaning the court does not take any of the petitioner’s assets. Petitioners are often able to keep the property that’s most important to them by protecting them with one of the available bankruptcy exemptions. Some Chapter 7 filers remain in possession of homes, cars, and real property by using these exemptions.
“All your debts will disappear in bankruptcy.”
Chapter 7 bankruptcy is effective at wiping away consumer debts, including credit card bills and medical debt, but it does not eliminate your obligation to make child support payments, pay back taxes, or pay alimony. You will also be obligated to keep making payments on any secured loans, such as mortgages or car loans, if you wish to retain the property. However, filing for bankruptcy often provides an opportunity to renegotiate payments on the debts that aren’t eliminated. You’ll also benefit from the automatic stay, which provides you with an amount of time during which you will not be obligated to make payments on certain debts, even if they won’t be wiped away by the bankruptcy.
If you are an Illinois resident falling further and further behind on your bills and need a helping hand to escape from debt, speak with a compassionate and knowledgeable attorney to find out whether bankruptcy would be the right choice for you. Contact the Chicagoland bankruptcy attorneys at Johnson, Westra, Broecker, Whittaker and Newitt for a consultation at 630-665-9600.