Common misunderstandings about filing bankruptcy in Ohio

Many consumers harbor misunderstandings about bankruptcy, including its long-term impacts, eligibility criteria and effects on different types of debt.

Each year, thousands of people in Ohio turn to bankruptcy as a means of debt relief. As of March 31, 2016, over 38,000 bankruptcy cases were pending throughout the state, according to U.S. Bankruptcy Courts data. Unfortunately, many people may choose or rule out this debt relief option based on prevalent misconceptions about bankruptcy law and the filing process. It’s important for consumers to be aware of these myths before making any final decisions about filing bankruptcy.

Availability of bankruptcy

Filing Chapter 7 or Chapter 13 bankruptcy may not be an option for every person, since the U.S. Bankruptcy Code establishes eligibility criteria for each chapter. Since Chapter 13 bankruptcy requires a debt repayment plan, consumers must show that they have adequate income to follow the plan. To file Chapter 7 bankruptcy, which does not require any repayment of debt, consumers must pass a “means” test to show that their income and debt levels justify this type of filing.

Debt eligibility

Contrary to popular belief, not all debts are eligible for discharge during Chapter 7 or Chapter 13 bankruptcy. Time magazine notes that certain liabilities, including child support, tax debt and debt relating to personal fraud, typically aren’t forgiven. Other liabilities, such as student loan debt, can be difficult to discharge absent extenuating circumstances. It’s important for consumers to realistically understand which of their debts may be relieved through bankruptcy before deciding whether to file.

Future impacts

Many people may hesitate to consider filing bankruptcy because they worry that they will face lasting adverse effects if they do so. These include the following potential outcomes:

• Termination or other negative consequences at work
• Loss of the right to file bankruptcy again in the future
• A damaged credit score and inability to secure credit

However, these concerns are often unsubstantiated. Termination or discrimination due to bankruptcy is illegal, and government entities can’t factor a bankruptcy filing into hiring decisions. People who have filed bankruptcy once are permitted to file again after enough time has passed. Additionally, as Time magazine notes, consumers can take various steps to rebuild credit after bankruptcy. Some people may even see their credit scores improve immediately after the filing is complete.

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