9 Common Bankruptcy Myths
By Article Posted by Staff Contributor
The estimated reading time for this post is 218 seconds
Common bankruptcy myths are everywhere, even though American consumers have been filing chapter 13 and chapter 7 bankruptcies since modern bankruptcy laws enacted back in the 1930s.
What is Bankruptcy
Bankruptcy is a federal court proceeding designed to help consumers and businesses reorganize their debt. Most consumers either file chapter 13 or chapter 7 bankruptcy.Chapter 13 personal bankruptcy is more accessible to file than chapter 7 because it does not discharge your debt.
Chapter 13 Bankruptcy
Chapter 13 personal bankruptcy is more accessible to file than chapter 7 because it does not discharge your debt. You have to submit a three-to-five-year repayment plan to repay all or part of your debt. Your creditors can disagree with the repayment plan you submitted to the courts. However, the bankruptcy judge has the final word, not your creditors
Chapter 7 Bankruptcy
Businesses and consumers who are down on their luck can file for chapter 7 or liquidation bankruptcy. If you are not earning enough money to make minimum payments on all your debts, you will most likely approve to file chapter 7 bankruptcy.
Common Bankruptcy Myths
Many Americans are struggling financially. Both chapter 7 & 13 bankruptcies can provide them with a fresh-start they desperately deserve; however, long-dated myths about bankruptcy stop them from filing. Here are the 9 common bankruptcy myths:
I’ll Lose Everything I Have
Your homestead or primary home, qualified retirement accounts, including defined-benefit and defined-contribution plans, public benefits, and tools for the trade professionals, are all exempt properties.
All Debts are Wiped out in Chapter 7 Bankruptcy
Some people believe that filing for bankruptcy will interfere with child support. Student loans, alimony, child support, debt related to fraud, and three year back taxes are all debts that cannot be discharged through bankruptcy
Only deadbeats file for bankruptcy
Some people believe filing for bankruptcy is not an honorable thing to do. They think that they must pay back every borrowed money regardless of their current financial situation.
The statement, as mentioned earlier, is half-true. You must pay back your lenders, but your financial situation can be different five years from now.
In 2005, Congress passed, and George W Bush signed new bankruptcies, which limit how often someone can discharge their debts. So, if you met the stress test, you should not feel ashamed for wanting a fresh start.
My Partner Has to File with Me
Your partner does not have to file bankruptcy with you. However, you are better off filing together, especially if you live in a community property state. Filing alone will allow creditors to go after your partner once your bankruptcy is discharged. For properties that you and your spouse own jointly, your bankruptcy administrator might have to sell them.
You Can’t Get Rid of Back Taxes Through Bankruptcy
You can discharge IRS debt through bankruptcy. However, IRS has specific criteria that you have to meet before you can get rid of back taxes through bankruptcy. Here’s a list of debt that you can discharge through Chapter 7 personal bankruptcy:
- Student loans
- Alimony
- Child support
- Debt related to fraud
- Three years back taxes
You Can Only File for Bankruptcy Once
In 2005, Congress passed, and George W Bush signed new bankruptcies, which limit how often someone can discharge their debt. You can file for bankruptcy as many times as you want, but wiping away debts is something you can do every eight years. In the meantime, you can file a chapter 13 bankruptcy.
I Can Max Out All My Credit Cards, then File for Bankruptcy
You can’t run up all your credit cards, then file for bankruptcy. Your creditors would most likely file adversarial proceedings and claim that you obtain the credit card loans by fraudulent means. Bankruptcy judges often agree with the creditors and deem the debt nondischargeable.
Everyone Will Know
Bankruptcy proceedings are public information, a quick search from your county court of clerks might reveal your bankruptcy filing. The tradeline stays on your credit reports for up to 7 years. So, your prospective creditor would know that you filed for bankruptcy.
Bankruptcy, both chapters 7 and 13, allow you to streamline your finances and start over. If you are experiencing severe financial difficulties, worrying about what others think should be your least concern.
Bankruptcy Discharges All Debt.
Bankruptcy does not discharge all debts. Here’s a list of debt that you can discharge through Chapter 7 personal bankruptcy:
- Student loans
- Alimony
- Child support
- Debt related to fraud
- Three years back taxes
RELATED ARTICLES
Credit Scores Are Dropping Across America: Here’s Why It’s Happening
The estimated reading time for this post is 308 seconds Credit scores in the U.S. are slipping, and fast. The average FICO® Score has dropped to 715 in 2025, down from its pandemic-era highs. For some borrowers, especially younger Americans...
Credit Reports After Death: What Surviving Family Members Should Know
The estimated reading time for this post is 110 seconds Bottom line: The deceased person’s accounts don’t just vanish—they’re typically settled by the estate. Reports will eventually reflect a “deceased” indicator, and you’ll coordinate closures with lenders. Survivors aren’t automatically...
2 Comments
Leave Comment
Cancel reply
Credit Scores Are Dropping Across America: Here’s Why It’s Happening
Credit Reports After Death: What Surviving Family Members Should Know
How to Pull a Credit Report for a Deceased Person (and What to Do With It)
Gig Economy
American Middle Class / Oct 05, 2025
Credit Scores Are Dropping Across America: Here’s Why It’s Happening
The estimated reading time for this post is 308 seconds Credit scores in the U.S. are slipping, and fast. The average FICO® Score has dropped to...
By Article Posted by Staff Contributor
American Middle Class / Oct 05, 2025
Credit Reports After Death: What Surviving Family Members Should Know
The estimated reading time for this post is 110 seconds Bottom line: The deceased person’s accounts don’t just vanish—they’re typically settled by the estate. Reports will...
By Article Posted by Staff Contributor
American Middle Class / Oct 05, 2025
How to Pull a Credit Report for a Deceased Person (and What to Do With It)
The estimated reading time for this post is 364 seconds Credit bureaus allow a spouse or court-appointed personal representative/executor to request the decedent’s credit report by...
By Article Posted by Staff Contributor
American Middle Class / Oct 05, 2025
What Happens to Student Loans, Mortgages, and Car Loans After Death?
The estimated reading time for this post is 126 seconds Short answer: Federal student loans are discharged upon death with proof; mortgages and auto loans don’t...
By Article Posted by Staff Contributor
American Middle Class / Oct 03, 2025
If You Have More Than $1,000 in Your Savings Account, Here Are 10 Money Moves
The estimated reading time for this post is 245 seconds Introduction: Why $1,000 Matters but Isn’t Enough Let’s start with a reality check. The median emergency...
By Article Posted by Staff Contributor
American Middle Class / Oct 03, 2025
20 Colleges with Strong “Bang-for-Your-Tuition-Buck
The estimated reading time for this post is 364 seconds Introduction: Why ROI Matters More Than Prestige in 2026 For middle-class families, the cost of college...
By Article Posted by Staff Contributor
American Middle Class / Oct 01, 2025
Alternative Credit: How Borrowers Without Traditional Credit Histories Can Still Qualify for Loans
The estimated reading time for this post is 253 seconds Introduction No credit history? You’re not alone. Millions of Americans live in a cash-first world, or...
By Article Posted by Staff Contributor
American Middle Class / Sep 30, 2025
10 Things Middle Class Americans Used to Enjoy but Can Barely Afford Anymore
The estimated reading time for this post is 154 seconds Introduction: The Squeeze on the Middle Class There was a time when being part of the...
By Article Posted by Staff Contributor
American Middle Class / Sep 30, 2025
Debt Collectors and Your Rights: How to Handle Calls After a Death
The estimated reading time for this post is 168 seconds Losing a loved one is one of life’s hardest experiences. Unfortunately, it’s also a time when...
By Article Posted by Staff Contributor
American Middle Class / Sep 30, 2025
Authorized User vs. Joint Account Holder: What’s the Difference?
The estimated reading time for this post is 218 seconds Credit cards are convenient, but when more than one person’s name is tied to the same...
By Article Posted by Staff Contributor
Latest Reviews
American Middle Class / Oct 05, 2025
Credit Scores Are Dropping Across America: Here’s Why It’s Happening
The estimated reading time for this post is 308 seconds Credit scores in the U.S....
American Middle Class / Oct 05, 2025
Credit Reports After Death: What Surviving Family Members Should Know
The estimated reading time for this post is 110 seconds Bottom line: The deceased person’s...
American Middle Class / Oct 05, 2025
How to Pull a Credit Report for a Deceased Person (and What to Do With It)
The estimated reading time for this post is 364 seconds Credit bureaus allow a spouse...
Pingback: The Middle-Class Needs to Support Elizahttp://financialmiddleclass.com/?p=1413&preview=truebeth Warren’s Bankruptcy Plan -
Pingback: 4 TYPES OF BAD CREDIT REPORTS AND HOW TO FIX THEM - FMC