When people get under insurmountable debt and keeping up with loan repayments and credit card bills, etc. become almost impossible, then bankruptcy offers them a chance for a clean slate- to start fresh and bring the situation under control.
What is Bankruptcy?
When an individual or organization is incapable of honouring their financial obligations, they can file for bankruptcy. For this, they have to file a petition in the court where all their outstanding debts are assessed and removed.
Although bankruptcy is a fairly common concept, there are many myths surrounding it, some of which are:
1. Bankruptcy Makes You Lose Everything
Many people tend to develop a fear for home loans, personal loans, etc. thinking if they couldn’t repay, they can end up becoming bankruptcy and lose everything- their house, money, other assets, etc. However, nothing could be further from the truth.
While it’s true that going bankrupt isn’t quite a bed of roses, it’s certainly the best option when your finances are out of control and you are unable to bear the strain of debt. Most importantly, it’s your best shot at saving your precious assets. In a large number of cases, the government or the concerned financial institution allows the bankrupt person to repay their debt on the terms that they are comfortable with.
2. Bankruptcy Removes all your Debts
This is probably one of the most harmful myths that have been floating around for quite some time. Many people are led to believe that bankruptcy will solve all their problems and simply make all of their loans and other forms of debts disappear. However, this is a grey area which they must learn about.
While it’s true that bankruptcy can help wipe away debts like credit card debt through a discharge, there are certain debts like tax debts, child support, and misc. fees etc. which cannot be discharged.
3. Bankruptcy Makes your Life Hell
There is a stigma attached to bankruptcy in the society. When someone files for bankruptcy, people jump to the conclusion that the person is irresponsible towards their credit management, and it’s their own fault that their CIBIL rating is damaged and they are under high stress. However, it’s only in few cases when people run into serious issues like divorce, job loss, or a serious illness.
Bankruptcy is meant to improve your financial situation and not worsen it further. So, it should not be looked upon at otherwise.
4. Bankruptcy Ruins your Credit Permanently
There is no denying that bankruptcy greatly affects your CIBIL rating. However, the idea that its nature is permanent, is nothing but a delusion.
People make credit-related mistakes all the time. They make late payments on a consistent basis, stick to making minimum payments on their credit cards, default on loans, and what not. However, it’s rare that the damage done is permanent. In most cases, including bankruptcy, you can always start over and restore your creditworthiness.
5. Bankruptcy Makes It Impossible to Buy a Home Again
People fear that after going bankrupt they won’t be able to apply for a home loan ever again. They think that no bank would ever trust them. However, truth is that many people do get home loans even after going bankrupt. They work on their credit report and build a high score. Thus, when they do apply for a loan, banks observe their efforts and don’t mind giving them a second chance.
So, these were the top bankruptcy myths that misguide the people and influence them towards making wrong decisions. This only proves that informing yourself with the right credit management practices and bankruptcy laws is important.
If you don’t want to see a day when you have to file for bankruptcy, then make it a point to manage your finances responsibly. Always monitor your credit card usage and maintain a monthly budget so that you know how much you are spending and how much you are saving. Simple things like these alone can greatly prevent an instance of bankruptcy in the future.