A thick swamp of misconceptions and negative associations surround bankruptcy, causing many to hesitate to use the debt-clearing tool. One major one is that only financially irresponsible individuals file for bankruptcy and that it is a shameful action.
However, according to the U.S. Courts, over 400,000 individuals filed for bankruptcy in 2023 as of the end of March. Bankruptcy is far from uncommon. Besides scaring people away, the many falsehoods about bankruptcy can also cause individuals to make mistakes.
Spend a large sum of money on credit
One form of consumer bankruptcy, Chapter 7 bankruptcy, dissolves credit card debt. Some believe that because of this, it also discharges any debt they accrue on their credit cards right before filing. Going on a wild spending spree right before the bankruptcy happens is actually fraud, and any charges racked up on a credit card while performing fraud do not fall under the bankruptcy’s purview, meaning it stays.
Thinking that married couples have to file together
Spouses can file as a married couple or as individuals. Neither one is always the right option; the one that will discharge the most debt depends on each couple’s circumstances. If the debt is a joint debt, filing as an individual may put the other spouse on the hook for paying all of it. However, if it is an individual debt, filing as an individual may protect the other spouse’s property and credit.
Bankruptcy, despite the myths abounding about it, is a valuable tool for discharging debt. However, it is not a tool for indiscriminate spending and has nuances that require careful consideration.