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You'll give up everything - and other bankruptcy myths

Putting off filing for bankruptcy is a normal reaction. The process isn't easy and you probably have many fears and misgivings about taking what seems like a drastic step. But many of the things you hear from friends and relatives about entering bankruptcy simply aren't true. Take a look at some of the myths surrounding bankruptcy-and remember, they're just that. Myths.

You'll do better in the long run by paying off all your debts yourself.

Not exactly. You wouldn't be considering bankruptcy if the debt situation wasn't serious. Here's a good rule of thumb: do your debts total more than half of your annual income? Can you envision being able to zero out those balances in five years? (Remember, you will probably incur even more debt during this time, if your income is being stretched to pay off the old debt.) It is likely not possible to pay them all yourself, as much as you'd like to.

You won't owe a thing after filing for bankruptcy.

Nope, not true. While you can get relief from many types of debt (credit cards, medical bills), there are some you will be still be responsible for, such as: child support, taxes and student loans. This is true for both Chapter 7 and Chapter 13 bankruptcy.

You'll have to give up everything you own.

False. In most Chapter 7 cases you're allowed to retain the things you need for your everyday life, called "exemptions." (Their definition varies from state to state so be sure to talk to a local attorney.) Under Chapter 13, you keep your assets and your future repayment plan is based on their worth.

No one will ever loan you money again.

Well, for a while you won't be able to get the credit you used to and you'll pay higher interest rates for an average of 7-10 years while the filing appears on your credit report. But studies show that credit scores can even improve within a year after a bankruptcy filing. And you can work to improve your credit score in other ways.

You're a failure if you enter bankruptcy.

False. Bankruptcy isn't a reflection on your character. Bankruptcy is a solution to a financial problem. It exists to help people get back on track. It's not important how or why you got to this stage. You're ready to take the next step to move on with your life. Let a bankruptcy attorney help you start over.

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