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5 Bankruptcy Myths You Should Not Believe – Part 1

5 Bankruptcy Myths You Should Not Believe – Part 1

In modern times, it is not uncommon to see a millionaire file for bankruptcy after their companies owe a few millions. Even worse, usually the finances of all these millionaires are not affected at all and they keep enjoying their fortunes after causing a lot of people to lose their jobs and financial stability while they remain protected by the law.

However, contrary to what most people believe, filing for bankruptcy is not only caused by people overspending their credit cards or acquiring too many personal loans that become hard to repay. In fact, there are quite a few other reasons why file for bankruptcy besides unpaid personal loans. So before jumping to conclusions, let’s take a look at these and other myths surrounding consumer bankruptcy.

1. Financial Irresponsibility is the main reason why people file for bankruptcy

When it comes to filing for bankruptcy, there will always be some kind of abuse, like not repaying a personal loan for example. However, it is far more likely that people file for it for serious personal problems like becoming jobless, ending a marriage and even worse, suffering from a serious illness that makes it impossible for the person to repay their personal loans.

The reason why this can cause anyone to file for bankruptcy is that unemployment, legal fees from divorce and such tend to cost a lot, and that without even mentioning how costly it can be to face a medical bill, all of which make it almost impossible to have the money to pay for your credit cards or personal loans regardless of the good intentions anyone can have towards their debts.

For reference, just in the first third of 2012, more than 5 million of Americans filed for bankruptcy who, not coincidentally, had been jobless for six months or more. Likewise, in the year 2011 more than 20 percent of people who files for bankruptcy were undergoing huge expenses due to unpaid medical bills and personal loans.

2. Filling for bankruptcy as a way out of all past debts

There is no doubt that a lot of people who file for bankruptcy do so in the hoes that they will be able to start from scratch later on without owing any amount from their personal loans. This is only partially true though, since there are several kinds of debts besides personal loans that are not discharged by bankruptcy. Among these we have domestic support obligations like child support for example, which under no circumstances can be removed from anyone’s debt. Another similar kind of “unremovable debt” is having to pay for restitution because of a crime.

Even more so, since the economic crisis caused a lot of people to file for bankruptcy and a lot of personal loans to go unpaid, the Bankruptcy Abuse Prevention and Consumer Protection Act placed student loans also under that category of “unremovable” unless it is dictated otherwise after a special request on court. Additionally, these types of personal loans can also be forgiven under bankruptcy if the borrower is able to prove any kind of serious hardship, like a permanent disability or similar.

As for debts related to taxes, these tend to be reduced or completely discharged most of the time on a case by case basis, although in all cases this requires to have previously filed tax returns.

That’s it for now. Check back later on to learn the other there major bankruptcy and personal loans myths that are widely believed as true in society.