Filing for bankruptcy can be a good way to get yourself out of a deep financial hole and start over. Yet there is a sort of stigma associated with bankruptcy, and there are also some false myths floating around that deter some people from considering it as a serious option. If you're in debt up to your eyeballs and feel like you're drowning, take a look at the truth these myths are masking before you decide whether or not bankruptcy is worth pursuing.
Myth: Filing for bankruptcy is expensive.
Surely, you can't just file for bankruptcy for free or for $20 or everyone would be doing so in order to get rid of even the smallest debts! There are fees involved, but they're not nearly as high as you might think. To file Chapter 7 bankruptcy, the fee is $335. And to file Chapter 13 bankruptcy, the fee is $310. Depending on the terms of your bankruptcy, you may also have to pay a small fee to take a personal finance course as a provision of your debts being discharged. There's also the cost of an attorney -- which is often as low as $1,500.
So, all in all, you can expect to pay less than $2,000 in most cases. This sounds like a lot, but it's probably less than even a year's worth of interest on all the loans you have. Most lawyers won't charge you until you're finished with the process and therefore have more cash on hand.
Myth: Bankruptcy will make it impossible to get a loan in the future.
It's true that bankruptcy will affect your ability to take out loans for a few years afterwards. It will be on your credit report for 7 to 10 years, and lenders are less likely to give a loan to someone with a bankruptcy on their record. But there is a big difference between being unable to get a loan and having a harder time getting a loan.
There are still some lenders who will lend to you, but they will put more weight on other factors like your job history and income. In all, this really is a good thing since it will keep you from getting in over your head in debt again. You'll be able to find financing with some work if you can, indeed, afford it. If you can't afford it or are not willing to put in the time, you won't get a loan. After 7 to 10 years, however, the bankruptcy will be off your record and it will be as if it never happened.
Myth: Bankruptcy will tarnish your good name.
This myth arises from a practice that was common years ago. When you filed for bankruptcy, your name used to be published in the newspaper as a way to alert creditors. This had the side effect of "shaming" anyone who filed for bankruptcy among their peers. Thankfully, this is no longer the practice. Newspapers do not publish records of who has filed for bankruptcy. Instead, your creditors are notified privately that you have filed. It is up to you whether or not you tell your friends, family members, and neighbors that you have filed, so you don't have to worry about people finding out and tarnishing your bad name.
Also keep in mind that many people file bankruptcy each year. Chances are, some of your friends have done the same -- and they'll be a lot less judgmental about your decision to do so than you assume.
If you're not sure whether bankruptcy is right for you, meet with an attorney like Lazaro Carvajal to get the facts rather than relying on myths and stories you've heard on the street.