Beware: These bankruptcy myths could keep you from getting relief

Almost any bankruptcy lawyer will tell you that most people won't even come in for a consultation until they have tried everything else they can think of to pay off their debts. Even though qualified retirement savings are exempt from bankruptcy, for example, many people will use their retirement nest egg to pay down their unmanageable medical or credit card bills.

Don't let misinformation get the best of you. Get the facts first -- then make the decision.

Here are four myths about personal bankruptcy that could stand in the way of a stable financial future:

Myth: Bankruptcy is the result of irresponsible choices and overspending.

This might seem likely to you, but it's just not the truth. In 2009, NerdWallet pulled the figures and found that the majority of all consumer bankruptcies -- 57 percent -- were the result of unaffordable medical debt.

Myth: Those who suck it up and pay off their debts are better off financially.

It ain't necessarily so. There may very well be good lessons to be learned from conquering what seems to be a mountain of debt, but the financial benefits aren't nearly as clear cut. Some people benefit more from the stress relief of bankruptcy than from the hard work of debt repayment, others the opposite. Remember, it's true that bankruptcy hurts your credit, but so does unmanageable debt.

If you owe more than half your annual income, consider how long it may take you to pay it down. Can't see a way to do it in less than 5 years? Bankruptcy might put you in a better place.

Myth: Bankruptcy will destroy your financial future.

Before you worry too much about the devastating effect you expect bankruptcy to have on your credit, consider these findings from the Federal Reserve Bank of Philadelphia. Of those who filed for Chapter 7 in that region in 2010, the average credit score was 538.2 on Equifax's scale. After their bankruptcies were complete, the average credit score was 620 -- nearly an 82 point increase.

Myth: Bankruptcy forces you to sell all your assets to pay your creditors.

This is close to the theory, but not the reality of bankruptcy. Chapter 7 is called "liquidation" bankruptcy because the debtor's saleable assets are sold off and distributed among the creditors. The reality is that most individual debtors have few assets that could be liquidated. Your home and your car are the most likely, but there are ways to save them.

The most important point is this: If you're having debt problems, at least call a bankruptcy attorney and find out your rights. You may be surprised at the myths you've fallen for.

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