Whether or not one believes America’s recent economic crisis could have been forecasted, there is no denying the fact that Americans in the United States have had to face many financial challenges within the last few years. One of these challenges relates to bankruptcy which can be defined as, "a federal judicial procedure by which most debts owed by a person or entity are extinguished or reduced or the payment of which are delayed" according to yourdictionary.com. Since bankruptcy filings remain on the rise, one must be familiar with bankruptcy generally. Let’s begin by discussing some common myths associated with bankruptcy.

Myth Number 1: All debts are discharged in a bankruptcy filing

Although many debts can be discharged after filing for bankruptcy, there are certain debts such as child support, student loans and most taxes which are not discharged in a bankruptcy filing. The most important assets an individual owns such as a house or car, however, can be protected from any bankruptcy proceeding.

Myth Number 2: Filing for bankruptcy will give a consumer a fresh start with credit

All bankruptcies may be displayed on one’s credit report for up to 10 years, depending upon the type of bankruptcy which has been filed. On the other hand, a person who has filed for bankruptcy can take steps to increase their credit score even after filing for bankruptcy. In addition, filing for bankruptcy will usually stop harassing phone calls from creditors demanding payments.

Myth Number 3: You lose everything you own in bankruptcy

Once again this is not necessarily true because many bankruptcy cases allow a debtor to keep certain assets due to exemption rules governed by state law.

Myth Number 4: Both spouses need to file bankruptcy together

If you are married, you and your spouse need not file bankruptcy simultaneously. This means that either your or your spouse may file for bankruptcy individually. Which option you choose mainly depends upon your financial situation at the time of filing for bankruptcy and the state in which you plan to file bankruptcy.

Myth Number 5: Filing for bankruptcy means I am a failure

This is certainly not true. In fact, research suggests that most bankruptcies are filed as a result of uncontrollable factors a person may be forced to experience. These include health problems necessitating excessive medical bills, loss of employment which results in a reduction of monthly income and/or relief from a massive amount of debt due to over extended credit. In fact, many well-known figures have filed for bankruptcy in the past such as Donald Trump, Walt Disney, Larry King, Abraham Lincoln, and even Henry Ford to name just a few.

In the event you might ever have to file for bankruptcy, knowledge translates into power. Clearly, knowledge about bankruptcy will help protect you and your family from exposure to bankruptcy. For additional information and specific legal advice that pertains to your financial situation, please consult a qualified bankruptcy lawyer in your area if you are thinking about filing for bankruptcy.