Many people put off filing for bankruptcy much longer than they should because they believe one or more of the bankruptcy myths on this page. Read on to learn some surprising myths—and facts—about bankruptcy. You may discover that false beliefs about bankruptcy are holding you back from moving your life forward to a better financial future.

Myth #1: Bankruptcy Will Ruin Your Credit Score Forever.

A bankruptcy will be the primary factor in my credit score. A bankruptcy remains on your credit report for up to 10 years, which seems like a long time. However, your credit score is largely determined by your debt to income ratio. After a bankruptcy, your debt to income ratio will greatly improve because your debts will be erased, so your credit score will improve. Eventually your bankruptcy will be removed from your credit report completely. And long before that, your credit score is likely to rebound.

A report by the Federal Reserve Bank of Philadelphia showed that the average credit score of people who filed for Chapter 7 bankruptcy in 2010 rose about 80 points, from 538.2 to 620, in the months between the filing and the resolution of their bankruptcy cases. Most people have their credit score back in the 700’s within a couple years after bankruptcy.

Myth #2: You Should Do Everything in Your Power to Pay Off Your Debts Before Resorting to Bankruptcy.

You are a responsible person, and filing for bankruptcy feels like running out on your debts; that’s why you haven’t yet filed. Of course you should make a reasonable effort to pay your debts, but that doesn’t mean you should deplete all your resources before filing for bankruptcy.

In fact, one of the worst things you can do is to take loans against your 401(k) or other retirement accounts in an effort to pay off your debts. Not only will you incur interest and penalties, but the money that you had carefully saved for your future will probably go to a large corporation that could have taken a tax write-off for your unpaid debt. That retirement money would have been protected in a bankruptcy; don’t use it to pay your Visa bill.

Think about it this way: which do you think the U.S. government would prefer you to do with that money: pay off a credit card company, or be able to support yourself in retirement so the government doesn’t have to? That’s why there are bankruptcy laws, and you should make use of them.

Myth #3: If You File For Bankruptcy, You Lose Everything.

Remember, the government created bankruptcy so you could have a chance at a fresh financial start—but that’s not possible if you don’t have anything to rebuild with. That’s why a certain amount of property is exempt from bankruptcy, including money in retirement accounts or college savings accounts, clothes and personal effects, household items, a certain amount of equity in your home and vehicle, even approximately $20,000 in cash and much more. In fact, most Chapter 7 bankruptcy cases are “no asset” cases, meaning that there are no non-exempt assets for the bankruptcy trustee to take for your creditors’ benefit.

Myth #4: Your Spouse Has to File for Bankruptcy if You Do.

There are times when it makes sense for both spouses to file for bankruptcy. For instance, if you and your spouse incurred a lot of debt together in both your names, you should probably both file. If you don’t, the creditor may be able to go after the spouse who didn’t file for the whole amount of the debt.

But often, there are situations in which one spouse has a lot of debt in their own name, and the other does not. In those situations, it might make better sense for the spouse with a lot of debt to file for bankruptcy alone.

Additionally, bankruptcy may be an excellent idea for a person who is engaged to be married, but buried in debt, and worries about bringing that debt into the marriage. A successful bankruptcy before the marriage by one party may make that marital union a whole lot happier.

Myth #6: Filing for Bankruptcy is Expensive and Difficult.

There is a filing fee and attorney fees involved in filing for bankruptcy. But they are probably less than you think, and considering the amount of debt they will help you get rid of, they are well worth it—an investment in your future.

Filing for, and completing, a bankruptcy case is now simpler than ever. With a little information from you during a telephone consultation, and completing some financial forms, your attorney completes and files your petition—you don’t even need to come into the office. During your Chapter 7 bankruptcy, there is one meeting with the bankruptcy trustee that takes about five minutes (and, due to COVID-19, may be conducted by telephone). Within four months after your bankruptcy case is filed, you should receive your discharge of debts, with very little stress or effort on your part.

Myth #7: Filing for Bankruptcy Means You’re Irresponsible, or a Loser.

Bankruptcy doesn’t mean that you are a reckless spender or poor money manager. We live in difficult and uncertain times, and many people find themselves in debt through no fault of their own: a medical crisis; a divorce or other legal problem; a job loss or financial losses due to COVID-19. Suffering bad luck doesn’t mean that you should have to suffer financially for the rest of your life.

In fact, making the choice to file bankruptcy doesn’t mean you’re a loser. On the contrary, it could be one of the smartest financial decisions you’ll ever make. Bankruptcy laws were put in place to help people take control of their financial lives, and smart people take advantage of the tools available to them. If you don’t believe that, take a look at a list of people who became successful after bankruptcy. Bankruptcy may not catapult you to stardom or the White House, but it can help you move forward into a bright future you may not even be able to imagine right now. Contact Bankruptcy Forward to learn how.