Bankruptcy Truths: Dispelling Myths and Misconceptions

Bankruptcy can feel like an overwhelming and intimidating concept. With 486,613 bankruptcy filings reported in the year ending June 2024, it’s clear that many individuals seek relief through this legal process. Yet there are countless others who need the lifeline bankruptcy offers but never file—held back by fear, shame, or misconceptions.

At Wright Family Law Group, our team has seen how these myths stop people from reclaiming control over their financial lives. We want people to understand that bankruptcy isn’t an admission of defeat; it’s an empowering tool for those seeking a fresh start. Today, we’re breaking down the most common myths about bankruptcy so you can make smart decisions about your financial future.

Myth 1: Bankruptcy Is a Sign of Failure

Filing for bankruptcy doesn’t mean you’ve failed—it means you’re taking control. Bankruptcy is a legal tool meant to help honest individuals and businesses manage overwhelming debt. Life happens—unexpected job loss, medical bills, or economic downturns can push anyone into financial turmoil.

Even highly successful individuals like Walt Disney, Milton Hershey, and Larry King have filed for bankruptcy. They used it as a stepping stone to rebuild their lives and find success, and so can you.

Myth 2: Bankruptcy Ruins Your Credit Forever

One of the most pervasive myths is that filing for bankruptcy will permanently destroy your credit. While bankruptcy will initially impact your credit score, it’s far from a lifelong sentence. For many struggling financially, their credit may already be declining due to missed payments or high debt balances. Bankruptcy provides a clean slate, often making it easier to rebuild your credit over time.

Here’s how bankruptcy can help:

• Eliminates debt: With no outstanding debt dragging your score down, you can focus on making on-time payments for new accounts.
• Access to credit: Surprisingly, many individuals receive credit card offers shortly after filing, as creditors know they can’t file again for several years.
• Home loans: You can qualify for an FHA or VA mortgage as soon as two years after a Chapter 7 discharge.
• Financial Review Programs and Education: Filing for bankruptcy opens people up to educational opportunities and programs to learn how to better manage their finances.

Most clients have reported seeing their credit score improve significantly within 12 to 18 months. 

Myth 3: You’ll Lose All Your Assets in Bankruptcy

This is one of the scariest myths for many considering bankruptcy. The reality is far less dire. Bankruptcy laws are designed to protect your core assets—not take everything away.

How Does Chapter 7 Work?

• Asset liquidation: Under Chapter 7 (often known as liquidation bankruptcy), non-exempt assets may be sold to pay creditors. However, in most cases, exemptions allow you to keep essentials, such as your home, car, retirement accounts, and personal belongings.
• Exemption examples: State laws vary, but typical exemptions include:
  • Homestead exemptions for your primary residence  
  • Vehicle exemptions up to a certain value  
  • Household goods and retirement savings  

How Does Chapter 13 Work?

For those filing under Chapter 13 (a reorganization bankruptcy), you keep all your assets while creating a repayment plan. You’ll repay creditors over time, often only a portion of the total owed, and retain possession of your property.

Working with an experienced bankruptcy lawyer ensures your rights are protected, and you can maximize the exemptions you’re eligible for.

Myth 4: Bankruptcy Is Only for the Irresponsible

There’s a dangerous stigma around bankruptcy that implies it’s reserved for people who’ve been careless with their finances. This couldn’t be further from the truth.

The reality? Life is unpredictable. Overwhelming debt often results from situations beyond anyone’s control:

• Job Loss: Unexpected unemployment without a safety net can add up quickly.
• Medical Bills: Accidents or long-term illnesses can bury families under enormous healthcare costs.
• Inflation: Rising costs of living and stagnant wages can make it difficult to stay afloat financially.

Not to mention—you’re not alone. The average American household carries $101,915 in debt when factoring in mortgages and other obligations. Bankruptcy is simply a legal and responsible approach to addressing it.

Myth 5: Bankruptcy Is Long and Complicated

Navigating the bankruptcy process may seem daunting, but it’s often more straightforward than people expect—especially with the right guidance.  

• Chapter 7 bankruptcy: Typically completed within 3 to 4 months.  
• Chapter 13 bankruptcy: Form a repayment plan that usually spans 3 to 5 years.  

While some paperwork is involved, working with an attorney streamlines the process, ensures accuracy, and minimizes delays—helping you move forward with confidence and peace of mind.

Debunking Myths for a Brighter Financial Future

At Wright Family Law Group, we see how financial hardship can weigh on individuals and families alike. Bankruptcy is not a punishment or an admission of failure—it’s a lifeline. It’s a way to reclaim your financial freedom and move toward a brighter future.

Don’t let misconceptions hold you back. Our experienced bankruptcy lawyers are here to help you make sense of your options, safeguard your rights, and support you every step of the way. Contact us today if you’re ready to leave the stress of overwhelming debt behind.