While filing for bankruptcy is a major decision, it is often the best option for people to get their finances on track. However, prevailing myths and misconceptions scare some people away from filing, which only makes their financial situation worse.
If you are weighing your options, it is important to know fact from fiction when it comes to bankruptcy. U.S. News & World Report offers the following clarifications so you take the right steps.
Myth #1: Filing for bankruptcy means you are bad with money
It is true some people get in financial trouble due to overspending. However, many more people end up filing because they or someone they love become ill and require medication attention. Even if you have health insurance, you may still wind up in debt because of illness when certain treatments and therapies are not covered. Loss of employment is another cause of financial instability. If your employer goes under or lays off workers, it will be difficult to keep on bills, your mortgage, and other expenses.
Myth #2: You will ruin your credit
Bankruptcy stays on your credit report for ten years, but its effect will decrease with each passing year. That means you could be on your way back to building a good financial record within two or three years after filing. Keep in mind being badly in debt, making late payments, or missing payments also affects your credit score negatively.
Myth #3: You can max out your credit cards without paying it back
There are rules about excessive spending leading up to your bankruptcy filing. Red flags include cash advances of $1,000 and luxury purchases of $725 or more shortly before you file. In addition to not discharging those expenses, fraudulent spending can also cause a denial of your case.