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What does 'bankruptcy' mean?

Bankruptcy can be very hard on people and businesses. It can mean a total change in a person`s lifestyle and way of life. Credit card companies will give a hard time to people who have a bankruptcy record since they can`t really measure the paying capabilities of a bankrupt person. People who file for it are suddenly surprised that all their assets are gone and they are indebted to pay more than what they originally owe. Bankruptcy is actually the last option that most people would give as an advice for people who are struggling to pay debts and credits. Here are some misconceptions that usually catch people off guard:

How does one file for bankruptcy?

Filing for bankruptcy is easy - this is a very wrong notion about bankruptcy. Filing can be very consuming, both time and money is at stake here. A time frame will be given by the court wherein the debtor must pay all debts and credits or else, assets and personal properties will be taken from the debtor. Money also matters in filing for bankruptcy since the debtor will have to pay more than what he/she originally owes in some bankruptcy types. People who file for bankruptcy usually don`t finish their repayment.

What happens when you file bankruptcy?

Debts all go away - bankruptcy does not get rid of all debts. There are just some debts that you cannot eliminate when applying for bankruptcy like taxes, student loans, child support, alimony, debts that are not declared in court, debts for personal injury to another individual during the debtor`s operation of a motor vehicle while intoxicated, debts for malicious injury etc.

Bankruptcy solves all credit related problems - this is an absolute mistake. Bankruptcy actually does the complete opposite. Credit history will carry your bankruptcy history for 7-10 years and will make it hard for credit companies to actually grant you a loan or a credit card. Even if they do agree to approve your application, interests may and probably be higher than the normal.

Debts will be removed for free - Wrong! This will not be free since failure to pay for the repayments will mean having to pay for them in kind - your assets and personal properties will serve as collateral for failure of payment. This is the reason why most people who fail in meeting the bankruptcy court`s requirements end up being homeless.

Is it a god idea to file for bankruptcy?

It`s just okay to file for bankruptcy - this can be very wrong for some cases. People who file for bankruptcy will find it very hard to find another work and apply for loans since their records are always the first things to be scrutinized. Adjusting to paying regularly can prove to be difficult for most people. Especially since the court will more likely expect people to pay on time and this means personal living expenses will have to be monitored to a bare minimum; just for the necessities.

Can I keep some accounts out of bankruptcy?

You can`t do this very easily since bankruptcy courts are very strict when it comes to the declaration of accounts. There are laws that make sure that all accounts are declared to make sure that the debtor can really pay.