Myths about bankruptcy are so common that many people don’t know the real risks and benefits of the process. For example, some people think you have to sell all of your assets when you file bankruptcy, but that isn’t true.
You may have to liquidate certain assets when you file Chapter 7 bankruptcy. However, not all forms of bankruptcy require asset liquidation and, more importantly, even Chapter 7 bankruptcy allows you to exempt property from efforts to repay your creditors.
Another myth about bankruptcy that too many people believe is that a successful bankruptcy discharge will keep them from getting credit in the future, particularly more significant lines of credit like vehicle financing or mortgages. Despite some people claiming that bankruptcy will permanently affect your creditworthiness, that simply isn’t the case.
Your credit score starts to go back up within a few months
When you file for bankruptcy, your credit will take an immediate hit. Your score will drop substantially, and you won’t be in a position to qualify for new loans or lines of credit. Once the courts discharge your debt at the end of the bankruptcy process, the effects of your filing on your credit score and credit opportunities will slowly decrease.
Many people can get a new credit card within a few months of their discharge, although often not with very favorable terms. Better terms will be available once you’ve established a history of on-time payments after your discharge.
You may be able to secure a car loan within a year or so of your bankruptcy and a mortgage within a few years. Eventually, the bankruptcy will come off your credit report entirely and no longer impact either your score or the background review performed by potential lenders.
Getting rid of current debt can help you get better loans in the future
When you have a high level of personal debt and other blemishes on your credit report, it will be difficult for you to get the best terms for credit cards and other financing options. While bankruptcy will temporarily limit your financial opportunities, it will also remove some of the biggest hindrances to your future financial success from your credit report.
Filing for bankruptcy can be a way for you to secure better credit opportunities in the future, rather than a process that will forever eliminate your right to use consumer credit.