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4 Misconceptions About Bankruptcy Everyone Should Know

Bankruptcy
Bankruptcy is something that many people and businesses face at some point. Though it is fairly common, misconceptions still abound about the process of bankruptcy. If you are considering Chapter 13 or Chapter 7 bankruptcy, you need to know a few things about these misconceptions. Here are four misconceptions you may have about bankruptcy and the truth about each one.

1. Bankruptcy Is Private

One of the misconceptions that people have about bankruptcy is that it is a private act. The truth is, bankruptcy is actually listed as public domain. What this means is that once the bankruptcy is final, it will appear in public accessible documents. It may even appear in the local paper as a legal announcement if you are a notable business. It will be accessible to anyone wanting to access public court records.

This can be an issue for people who may be concerned about privacy and safety. For example, an ex-spouse filing bankruptcy may not want their information to be leaked out to their former spouse. In situations like this, certain legal steps can be taken to protect the person if physical harm could be an issue.

2. Student Loans Are Covered

Some college graduates have a misconception that student loans are covered under bankruptcy. The truth about student loans and bankruptcy is that they can be added to the bankruptcy, but only under very strict and hard-to-attain conditions. These conditions can be interpreted and applied differently depending on the judge of the bankruptcy case.

The Brunner Test is what is applied to student loan bankruptcy requests. For example, the student is stating that they can't pay back the loan due to undue hardship. A bankruptcy judge can decide if the hardship is long-term and if it does apply to being unable to ever pay the loan. Many bankruptcy lawyers will need to consider specific situations and hardships before agreeing to attempt adding the student loans to a bankruptcy case.

3. Bankruptcy Is the Only Option

If you are in severe debt and are unable to pay your debts, then you may be under the misconception that bankruptcy is the only option. The truth is bankruptcy is usually offered as a last option and not an only option. Your bankruptcy lawyer can work with you and help you look at the other options and apply the ones that work with your specific case.

Some of the options available are credit counseling and financial coaching. These options are becoming so popular that many bankruptcy lawyers will require this before they move the case through the legal system. This is to help educate the client to help reduce the chances of filing bankruptcy again in the future.

4. All Debts Are Covered

The largest misconception about bankruptcy is that all debts are covered. The truth about this misconception is that not all debts are covered. For those debts that are covered, you may have to meet specific criteria. This is especially true with medical bills and back income taxes. This means that you will need to prepare yourself for dealing with certain debts.

You may find that in order to file certain bills, like medical expenses, under your bankruptcy, you will need to pay a portion first. Some companies will allow you to pay a small fee to them to write off the account or charge it off. This will help you when you file for bankruptcy or have it removed from your credit report.

By keeping the truths about these four misconceptions of bankruptcy in mind, you can better prepare yourself for filing. If you have any questions about your specific situation, contact Attorney Patrick T. Smith. You can schedule a consultation to discuss your case and the next steps you should take.

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