Bankruptcy is often surrounded by stigma and fear, leaving many people feeling anxious and uncertain about their financial future.
But the reality is that bankruptcy is a legitimate and often necessary financial tool that can provide a much-needed fresh start to individuals carrying unmanageable debt.
In this blog, we will debunk common misconceptions about bankruptcy, address prevalent fears, and provide accurate information. By doing so, we aim to empower Chicago residents to make informed decisions about their future and take confident steps toward financial recovery.
Myth 1: Bankruptcy Ruins Your Financial Future
Many people believe that filing for bankruptcy means they will never recover financially.
Reality:
Bankruptcy can be a fresh start. It can give individuals an opportunity to not only rebuild their credit but to build a financially stable future, grow their personal wealth, and properly plan for retirement.
Typically, it takes about 6 months for individuals to recover their credit and get fully headed in the right direction.
Consider Jane, who filed for Chapter 7 bankruptcy with the help of Tang & Associates. Within two years, she rebuilt her credit score and secured a mortgage for her new home. This is a common occurrence for clients who file with Tang & Associates and follow Patrick Tang’s game plan for building wealth.
Patrick Tang emphasizes, “Bankruptcy is not the end; it’s a strategic step towards financial recovery. Many of our clients find themselves in a stronger financial position after taking the necessary steps to rebuild.”
Myth 2: You Will Lose Everything
There is a widespread fear that filing for bankruptcy means losing all personal assets, including homes and vehicles.
Reality:
Many assets can be protected under Chapter 7 and Chapter 13 bankruptcy.
In Illinois, various exemptions allow individuals to keep essential assets such as their home, vehicle, and personal belongings. This protection provides a sense of security and hope, ensuring that you can maintain a stable living situation during and after the bankruptcy process.
Chapter 13 bankruptcy, in particular, permits debt reorganization, enabling clients to retain their homes and cars while making manageable payments over time. This approach provides a structured way to address debts without losing valuable possessions, offering a more stable path to financial recovery.
One of many examples is Mr.Smith, a client of Tang & Associates, shares, “I was terrified of losing my home, but with Patrick’s guidance, I was able to reorganize my debts and keep my house.”
Myth 3: Bankruptcy Is Only for People Who Are Financially Irresponsible
There’s a stigma that bankruptcy is a result of poor financial management, suggesting that those who file are reckless or irresponsible with their money.
This misconception perpetuates feelings of shame and guilt among individuals considering bankruptcy.
Reality:
Many file for bankruptcy due to unforeseen circumstances like job loss, medical emergencies, or economic downturns. These situations are often beyond an individual’s control and can happen to anyone. Bankruptcy provides a legal means to address overwhelming debt and rebuild financial stability.
For instance, Sarah, who lost her job during the pandemic, and Mark, who faced overwhelming medical bills, both turned to bankruptcy as a lifeline. Despite their careful financial planning, they encountered situations that necessitated filing for bankruptcy. Their stories, along with many others, demonstrate that bankruptcy can be a responsible and strategic choice in times of crisis.
With the help of Tang & Associates, they were able to navigate the process and start rebuilding their financial lives, proving that bankruptcy can be a responsible and strategic choice in times of crisis.
Patrick Tang explains, “Our clients come from diverse backgrounds and often face external factors beyond their control. Bankruptcy is a tool to help them regain stability.”
Myth 4: Bankruptcy Permanently Damages Your Credit Score
Concerns persist that bankruptcy will lead to long-term damage to creditworthiness, making it impossible to secure loans, credit cards, or favorable interest rates in the future. This fear often deters individuals from considering bankruptcy as an option.
Reality:
While bankruptcy does impact credit scores initially, there are steps to rebuild credit over time.
The negative impact of bankruptcy diminishes as individuals take proactive measures to demonstrate responsible financial behavior. And sometimes, when a client is already involved in a judgment or foreclosure, the bankruptcy filing actually helps improve their credit score because the Debtor is finally taking action in fixing their debts.
Many people find that they can rebuild their credit faster than they expected by following a structured plan.
Steps to Rebuild Credit:
- Obtain a secured credit card: Using a secured credit card responsibly can help establish a positive payment history.
- Make consistent, on-time bill payments: Timely payments on all bills and debts are crucial for improving credit scores.
- Regularly check credit reports for accuracy: Monitoring credit reports helps ensure that all information is correct and allows for the timely dispute of any errors.
- Diversify credit types: Gradually adding different types of credit, such as installment loans or retail credit, can positively impact credit scores.
- Keep credit utilization low: Maintaining a low balance relative to credit limits shows lenders that you can manage credit responsibly.
By following these steps, individuals can rebuild their credit and eventually achieve a strong credit score, even after filing for bankruptcy.
Patrick Tang advises, “Post-bankruptcy, focus on creating a positive payment history. It’s a crucial step in rebuilding your credit.”
Myth 5: Bankruptcy Solves All Financial Problems
There’s a misconception that filing for bankruptcy is a one-stop solution to all financial challenges.
Reality:
Bankruptcy addresses debt but requires a change in financial habits for long-term stability.
Tang & Associates provides financial education and counseling to help clients develop better financial management skills. However, if you are already facing financial difficulties, it is best to take action and consider a bankruptcy as quickly as possible.
You may find that by taking action quicker, you will be able to resolve your financial difficulty in a less painful manner than anticipated. The horror stories that people hear are always from those who’ve waited far too long to fix their financial difficulties and when they finally do file bankruptcy, the bankruptcy can only help a little. The bankruptcy filing cannot turn back time. So the earlier you start, the better.
Creating a sustainable financial plan post-bankruptcy is essential for long-term success.
Addressing Common Bankruptcy Concerns
People often have several common concerns when facing financial insecurity and considering bankruptcy. Here are a few of them:
Impact on Job or Employment Opportunities
One common concern people have when considering bankruptcy is whether it will affect their job or future employment opportunities. Fortunately, legal protections ensure minimal impact on employment for most, and many employers do not consider bankruptcy when making hiring decisions.
Effect on Family Dynamics
Another worry is how bankruptcy will affect their family. Bankruptcy can actually alleviate financial stress, reduce financial burdens and improve family dynamics.
Protection of Retirement Savings
Another common concern is whether they can keep their retirement savings if they file for bankruptcy.
The good news is that all valid forms of retirement plans are fully exempt and protected from liquidation under bankruptcy laws, ensuring that your future remains secure and providing you with peace of mind during a challenging time.
Effectively Navigate Bankruptcy with Tang & Associates
Tang & Associates is dedicated to helping Northern Illinois residents navigate bankruptcy with expertise and compassion.
Specializing in Chapter 7 and Chapter 13 cases, Tang & Associates provides a range of services, including legal representation, financial counseling, and assistance with credit rebuilding serving all of Cook, Lake, McHenry, Kane, Will and DuPage counties.
We understand that each client’s situation is unique, and we are committed to providing the support and guidance needed to turn financial turmoil into a fresh start.
If you’re struggling with debt, don’t hesitate to contact Tang & Associates for a consultation. Let Patrick Tang and his team guide you toward financial recovery.