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What are the most common myths about bankruptcy?

On Behalf of | May 27, 2022 | Bankruptcy |

At some point, many New Mexico residents may realize that they might benefit from filing for bankruptcy. Because there is a lot of negativity surrounding bankruptcy, it’s natural that some common myths have arisen.

Filing will cause you to lose everything

Some people believe filing for bankruptcy causes you to lose everything. This isn’t true as most people who file don’t lose any property. A lot of property is exempt, so you can keep it after filing for bankruptcy. Often, your belongings aren’t things that creditors want.

All your debts are discharged

A common myth is that you can discharge all debts through bankruptcy. In reality, only some of your unsecured debts will be discharged. This includes things like credit card debt, medical bills and personal loans. If you have debt that was ordered by the court such as alimony or child support, you cannot get out of paying them.

You’ll permanently destroy your credit

Filing for bankruptcy causes your credit score to decrease, but that’s not permanent. You can work toward rebuilding your credit by being responsible and paying your debts in full and on time going forward. Gradually, your credit will improve. It might take a few years, but you can get back to a good credit score.

Both spouses must file

This is a common myth, but if only one spouse has gone into debt under their name only, the other spouse does not have to file for bankruptcy. If the other spouse does not have any debt, it wouldn’t make sense for them to file as well.

Only irresponsible people file

Bankruptcy carries a stigma that only those who are irresponsible with money file. Most people who file for bankruptcy are honest and hardworking but struggle with paying back certain bills like medical expenses incurred after an unexpected illness or injury.

Creditors can continue contacting you after you file

After a bankruptcy filing, you get an automatic stay. This prohibits creditors from continuing to try to collect debt from you.

Bankruptcy can help you so that it’s easier to pay back your debt over time. You shouldn’t fear if you file.