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Are these consumer bankruptcy myths stopping you from filing?

Give up everything an individual owns, or continue facing daily harassment for insurmountable debt -- this is sadly how many people view the decision process leading up to bankruptcy. Forking over every last asset, ruining any stable financial future and total debt elimination are pervasive myths that continue to circulate among debtors. Clearing away fact from fiction can help Washington individuals make better-informed decisions regarding consumer bankruptcy.

Losing every last asset is a myth most commonly associated with Chapter 7 bankruptcy. While it is true that some assets may be used to pay creditors, most people rarely lose everything. Homes in particular are usually easy enough to hold on to during this process, especially if the home does not have any equity that could generate a profit for repaying creditors. Homestead exemptions may also help protect filers from losing their homes even if they still have equity.

Bankruptcy helps clear the path for a more stable financial future by clearing away certain debts and allowing consumers to refocus their income. However, it is true that filing for Chapter 7 will stay on a credit report for a period of 10 years. Credit reports are usually run when people apply for car loans and even apartment rentals, and the thought of dealing with a 10-year burden can put some people off of the process. In reality, that vast majority of people who file for Chapter 7 -- 90 percent according to the Federal Reserve -- rebuild their credit enough to qualify for credit in only 18 months.

Consumer bankruptcy can be an invaluable course of action for debtors who are unable to repay their overwhelming debt, but it is not a magic wand that wipes away debt without discretion. Although certain individuals in Washington have had some level of success at discharging student loans, student loans, child support and alimony payments are usually off of the table during bankruptcy proceedings. Still, by discharging eligible debts, most consumers can more readily handle remaining expenses while building the foundation for a more stable financial future.

Source: The Motley Fool, "4 Bankruptcy Myths -- Debunked", Maurie Backman, July 30, 2016

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