Common myths about filing for bankruptcy in Colorado

Many people in extreme debt may be deterred from filing for bankruptcy because of the many myths that surround this process.

Those who are overwhelmed by debt in Colorado often wonder if they will ever be able to achieve financial freedom. Although bankruptcy can provide debtors with a fresh financial start, some may be deterred from filing because of the many myths that surround this process.

Myths surrounding the bankruptcy process

According to U.S. News, one of the most common myths that exists about bankruptcy is that only people who are financially irresponsible need to file for it. However, many serious financial problems can result in significant amounts of debt. For example, a person may struggle with debt after suffering from a serious illness, getting divorced or losing his or her job. Some other common myths about bankruptcy include the following:

  • Bankruptcy permanently ruins credit - although bankruptcy can have a negative effect on a person's credit score, a person can quickly rebuild his or her credit rating after filing. According to U.S. News, filers should start rebuilding their credit after bankruptcy by using a secured credit card and then eventually switching to a standard one.
  • Bankruptcy discharges all debts - several types of debt cannot be discharged during the bankruptcy process. For example, domestic support obligations, like alimony or child support, cannot be eliminated. Depending on the circumstances, tax debts can sometimes be discharged or reduced.
  • Spending without abandon is permitted before filing - some may assume that they can use their credit cards excessively before filing for bankruptcy and that these debts will be discharged. However, courts have ruled that doing this is considered a form of fraud.

Those who desire to file for bankruptcy to acquire financial relief should also keep in mind that the process cannot cure all of their financial problems. When making the decision about what type of bankruptcy to file, debtors should remember that Chapter 7 bankruptcy only discharges certain debts. Comparatively, Chapter 13 bankruptcy can reorganize a person's debts or reduce them, states U.S. News.

Making the decision to file

Although Chapter 7 and Chapter 13 bankruptcy cannot completely change a person's financial situation, they can help a person get rid of his or her unsecured debts and stop foreclosures, repossessions, wage garnishments and utility shut-offs. According to the Federal Trade Commission, these two types of consumer bankruptcy can also allow a debtor to keep certain exempt assets.

Determining whether or not to file for bankruptcy in Colorado is a decision that should be approached with careful consideration. If you are interested in this form of debt relief, speak with an attorney to find out how declaring bankruptcy could affect your personal financial situation.

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