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Three truths and a lie about bankruptcy

Nearly everyone knows something about bankruptcy. Perhaps you had an uncle who filed for Chapter 11 after his small business folded. Maybe your ex-spouse filed for Chapter 13 after your divorce. Perhaps you yourself are considering Chapter 7 as a way to gain a fresh financial start.

But how much do you really know about bankruptcy? Can you identify the common myth among the true statements below?

Statement #1: Filing bankruptcy will put a stop to creditor harassment.

Statement #2: If you file bankruptcy, you will lose everything you own.

Statement #3: Filing bankruptcy will halt home foreclosure.

Statement #4: If you file bankruptcy, it may actually help your credit.

Do you think you have the right answer? Let's look at these four statements in more detail.

Statement #1: True. Filing bankruptcy will put an immediate stop to creditor harassment, wage garnishment and other creditor actions. As soon as you file a bankruptcy petition, the court will issue an "automatic stay" on your behalf. This prevents creditors from calling you, knocking on your door and much more.

Statement #2: False. If you file bankruptcy, you won't automatically lose everything. Both federal law and Florida state law provide important exemptions. No matter which type of bankruptcy you file, you'll be able to keep a certain amount of your assets. For instance, University Law School's Legal Information Institute points out that Individual Retirement Accounts (IRAs) are exempt and can't be turned over to creditors.

Statement #3: True. Filing bankruptcy will temporarily halt any foreclosure actions against you. This can give you a chance to breathe, consider your options and plan appropriately. Even if you must eventually give up your house, being able to stay in it a few more months may help you build up a little extra cash.

Statement #4: True. Filing bankruptcy may actually help improve your credit over the long run. Every time a creditor reports a late or missing payment, it negatively affects your credit score. By wiping out your debts and starting again, you can start rebuilding a positive credit rating.

Learn more facts about filing bankruptcy in Florida by consulting an attorney skilled in this area of law.

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