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Bankruptcy not only carries a stigma, but is also clouded in myth. Bankruptcy myths arise mostly from the history we attach to bankruptcy, but also from the legal complexity and subtle variations in the process. It is just not possible to know all the subtleties of bankruptcy law without studying it very carefully and for a long time. What makes it even more confusing when deciding whether to file bankuptcy is that these subtle differences vary from state to state.

These factors have an major impact on how we view the process, how it affects our financial standing, what happens after bankruptcy, and how other people will view us if we file for bankruptcy. As we can see from a close examination of bankruptcy in our modern society, many of the things we believe about bankruptcy are not remotely true.

Myth #1 – When you file for Chapter 7 bankruptcy all your debts are wiped out.

Unfortunately for the person filing for bankruptcy this is not true. Certain debts including child support, alimony, government-issued or government-guaranteed student loans, and debts incurred as the result of fraud will not be forgiven in a Chapter 7. Also when property loans or car loans are secured by assets such as your house or car, those loans will normally remain in place.

Essentially what happens in a Chapter 7 bankruptcy is that the bankruptcy trustee gathers and sells the debtor’s assets – other than those which are exempt or are pledged to specific creditors, for example a mortgage or car loan. The bankruptcy trustee then uses the proceeds of those non-exempt assets to pay legitimate creditors. Once this process is complete the debts to those creditors are fully discharged.

Myth #2 – The whole world will know I’ve filed bankruptcy.

It is true that the record of your bankruptcy is not hidden from the public. Anyone who wants to take the time to find out who is currently filing or who has filed for bankruptcy in the past can probably find that information fairly easily.

But the simple fact is very few people care about this information, so it is highly unlikely they will stumble on this information except by accident.

While the information may be publicly available somewhere, there is no unique place where you can find an up-to-date list of people who have recently filed for bankruptcy. The numbers are so high, the list changes so often, and the jurisdictions are so diverse that unless an organization has a significant staff dedicated to watching these figures they are simply not going to do it.

Myth #3 – When I file for bankruptcy everything I own will be sold.

This may be one of the biggest concerns that people have about bankruptcy and the thing that convinces them not to file. They have depressing images of debtors prison in their heads and often think will have to start from scratch – without a house, car, furniture, computer or even a change of clothing.

If it was actually like this you can imagine that almost no one would file for bankruptcy. The reality is that bankruptcy laws vary from state to state. But there are exemptions in every state|But every state has exemptions} that protect certain kinds of assets from seizure by your creditors or even the courts. These include your house, your car, household goods and clothing and money in qualified retirement plans.

These are just three of the more widely held myths about bankruptcy. There are many others. If you are thinking about filing for bankruptcy you would do well to seek the advice of a bankruptcy attorney who specializes in bankruptcy cases. That may be the only way you will get an accurate explanation of the laws in your state, and good, solid information about which course of action is best for you.