Bankruptcy can be a scary experience. But there are also some misconceptions about the process that can make it seem worse than it really is.
These myths often create unnecessary fear and shame, preventing individuals from considering bankruptcy as a legitimate way to get out of debt and escape other financial woes.
It’s time to debunk the following 12 common myths about personal bankruptcy so you can feel more comfortable seeking the financial relief you need.
If you’re over 50, take advantage of massive discounts and financial resources
Over 50? Join AARP today — because if you’re not a member you could be missing out on huge perks. When you start your membership today, you can get discounts on things like travel, meal deliveries, eyeglasses, prescriptions that aren’t covered by insurance and more.
How to become a member today:
- Go here, select your free gift, and click “Join Today”
- Create your account (important!) by answering a few simple questions
- Start enjoying your discounts and perks!
Important: Start your membership by creating an account here and filling in all of the information (Do not skip this step!) Doing so will allow you to take up 25% off your AARP membership, making it just $12 per year with auto-renewal.
Filing for bankruptcy is a sign of weakness
THE TRUTH: Seeking help is a sign of strength.
Some might be reluctant to file for bankruptcy because they see it as a sign of weakness. In reality, recognizing when you need help and taking steps to address financial difficulties is a responsible and proactive decision.
Many people face unexpected hardships — such as medical bills or a job loss — that can lead to bankruptcy. Taking action to resolve financial problems shows resilience and foresight. The faster you tackle the problem, the sooner you will get back on track so you can start building your net worth again.
Filing for bankruptcy means you are a failure
THE TRUTH: Bankruptcy is a tool for financial recovery.
There is a stigma associated with filing for bankruptcy that causes some people to view it as a personal failure. However, bankruptcy is simply a legal tool designed to help individuals recover from financial distress and start fresh.
Many successful people, including business owners and celebrities, have used bankruptcy to rebuild their lives. It's a step toward regaining control and paving the way for future financial stability.
Bankruptcy ruins your credit forever
THE TRUTH: Your credit likely will recover.
Although many people think bankruptcy permanently destroys your credit, it isn’t so. Bankruptcy does negatively impact your credit score initially, but many people find that their credit begins to recover within a few years if they manage their finances responsibly post-bankruptcy.
Rebuilding credit through consistent, on-time payments and responsible credit use can lead to significant improvement in your credit score.
Resolve $10,000 or more of your debt
Credit card debt is suffocating. It constantly weighs on your mind and controls every choice you make. You can end up emotionally and even physically drained from it. And even though you make regular payments, it feels like you can never make any progress because of the interest.
National Debt Relief could help you resolve your credit card debt with an affordable plan that works for you. Just tell them your situation, then find out your debt relief options.1 <p>Clients who are able to stay with the program and get all their debt settled realize approximate savings of 46% before fees, or 25% including our fees, over 12 to 48 months. All claims are based on enrolled debts. Not all debts are eligible for enrollment. Not all clients complete our program for various reasons, including their ability to save sufficient funds. Estimates based on prior results, which will vary based on specific circumstances. We do not guarantee that your debts will be lowered by a specific amount or percentage or that you will be debt-free within a specific period of time. We do not assume consumer debt, make monthly payments to creditors or provide tax, bankruptcy, accounting or legal advice or credit repair services. Not available in all states. Please contact a tax professional to discuss tax consequences of settlement. Please consult with a bankruptcy attorney for more information on bankruptcy. Depending on your state, we may be available to recommend a local tax professional and/or bankruptcy attorney. Read and understand all program materials prior to enrollment, including potential adverse impact on credit rating.</p>
How to get National Debt Relief to help you resolve your debt: Sign up for a free debt assessment here. (Do not skip this step!) By signing up for a free assessment, National Debt Relief can assist you in settling your debt, but only if you schedule the assessment.
You will lose everything you own if you file for bankruptcy
THE TRUTH: Many assets are protected in bankruptcy.
A common fear is that filing for bankruptcy means losing all your possessions. However, in many states, bankruptcy laws allow for exemptions that protect essential assets such as your home, car, and personal belongings.
The goal of bankruptcy is to provide relief, not to strip you of everything.
Only individuals can file for bankruptcy
THE TRUTH: Businesses can also file for bankruptcy.
Some believe that only individuals can file for bankruptcy, but businesses can also seek relief through bankruptcy.
Different chapters of bankruptcy apply to businesses and individuals. But each type of bankruptcy is intended to help a person or business restructure or eliminate debt and move toward financial recovery.
Trending Stories
Filing for bankruptcy means you are irresponsible with money
THE TRUTH: Financial hardship can happen to anyone.
There is a misconception that people who file for bankruptcy are irresponsible with money. However, many individuals who file for bankruptcy do so because of unforeseen and money-draining circumstances.
Medical emergencies, divorce, and economic downturns can all lead to bankruptcy.
You will lose your retirement savings if you file for bankruptcy
THE TRUTH: Retirement accounts are generally protected.
Many people worry that filing for bankruptcy will jeopardize their retirement savings. However, retirement accounts, such as 401(k)s and IRAs, often are protected under state bankruptcy laws.
These laws are intended to help you preserve future financial security so you can still look forward to a stable retirement.
Filing for bankruptcy will ruin your reputation
THE TRUTH: Bankruptcy is more common — and less stigmatized — than you think.
There is a widespread fear that filing for bankruptcy will permanently tarnish your reputation. In reality, it’s unlikely that many people outside of your creditors will know that you filed for bankruptcy.
Bankruptcy is a common and legal way to address overwhelming debt. Many people in society view it pragmatically rather than judgmentally. Sharing your experience can offer support and understanding to others who are struggling with their finances.
Filing for bankruptcy won’t stop creditors from harassing you
THE TRUTH: An “automatic stay” stops most collection efforts.
Some fear that creditors will continue to harass them even after they file for bankruptcy. The truth is that the bankruptcy court will initiate an automatic stay, which halts most collection activities and provides relief from creditor harassment for you and your family.
This legal protection gives you the breathing room needed to reorganize your finances.
Earn cash back on everyday purchases with this rare account
Want to earn cash back on your everyday purchases without using a credit card? With the Discover®️ Cashback Debit Checking account (member FDIC), you can earn 1% cash back on up to $3,000 in debit card purchases each month!2 <p>See website for details.</p>
With no credit check to apply and no monthly fees to worry about, you can earn nearly passive income on purchases you’re making anyway — up to an extra $360 a year!
This rare checking account has other great perks too, like access to your paycheck up to 2 days early with Early Pay, no minimum deposit or monthly balance requirements, over 60K fee-free ATMs, and the ability to add cash to your account at Walmart stores nationwide.
Don’t leave money on the table — it only takes minutes to apply and it won’t impact your credit score.
Filing for bankruptcy could cost you a job
THE TRUTH: Job loss due to bankruptcy is illegal.
Some people fear that filing for bankruptcy will result in job loss that will stop them from moving beyond living paycheck to paycheck. However, it’s illegal for employers to fire employees solely because they have filed for bankruptcy.
That doesn’t mean it cannot happen, even though it’s legally prohibited. But if you are illegally fired, you have the right to fight back.
You can file for bankruptcy only if you are unemployed
THE TRUTH: Employment status does not determine bankruptcy eligibility.
A common myth is that only unemployed individuals can file for bankruptcy. In reality, people from all walks of life can file for bankruptcy if they meet the legal criteria, regardless of their employment status.
Both spouses must file bankruptcy together if you are married
THE TRUTH: Individual bankruptcy filings are possible.
A common misconception is that married couples must file for bankruptcy together. In reality, one spouse can file individually if the debt is in just one person’s name.
Filing individually might be beneficial, depending on where you stand financially. The option to file for bankruptcy individually helps couples file in a way that suits their own unique needs.
Bottom line
Understanding the realities of bankruptcy can help you make informed decisions about your financial future.
Dispelling the myths on this list can remove the stigma and fear associated with bankruptcy, allowing you to take the necessary steps to eliminate some money stress and move toward recovery.
Consider the facts about bankruptcy and determine if it might be the right option for your situation.
Lucrative, Flat-Rate Cash Rewards
FinanceBuzz writers and editors score cards based on a number of objective features as well as our expert editorial assessment. Our partners do not influence how we rate products.
Wells Fargo Active Cash® Card
Current Offer
$200 cash rewards bonus after spending $500 in purchases in the first 3 months
Annual Fee
$0
Rewards Rate
Earn unlimited 2% cash rewards on purchases
Benefits
- Low spend threshold for its welcome offer — $200 cash rewards bonus after spending $500 in purchases in the first 3 months
- Cell phone protection benefit (subject to a $25 deductible)
- Can redeem rewards at an ATM for literal cash
Drawbacks
- Foreign transaction fee of 3%
- No bonus categories
- Select “Apply Now” to take advantage of this specific offer and learn more about product features, terms and conditions.
- Earn a $200 cash rewards bonus after spending $500 in purchases in the first 3 months.
- Earn unlimited 2% cash rewards on purchases.
- 0% intro APR for 12 months from account opening on purchases and qualifying balance transfers. 19.49%, 24.49%, or 29.49% Variable APR thereafter; balance transfers made within 120 days qualify for the intro rate and fee of 3% then a BT fee of up to 5%, min: $5.
- $0 annual fee.
- No categories to track or remember and cash rewards don’t expire as long as your account remains open.
- Find tickets to top sports and entertainment events, book travel, make dinner reservations and more with your complimentary 24/7 Visa Signature® Concierge.
- Up to $600 of cell phone protection against damage or theft. Subject to a $25 deductible.
Subscribe Today
Want extra-cash moves to come right to you?
Stop browsing endlessly. Get proven ways to earn pocket money, help cover rent, and crush your debt — sent to your inbox daily.