Bankruptcy Myths vs. Reality: Insights from a Dayton, OH Attorney

While filing for bankruptcy is a difficult decision, it is also a hopeful solution in many situations. In fact, there were 387,721 bankruptcy filings in 2022 alone, according to the U.S. Courts. 

If you’re wondering whether filing for bankruptcy is right for you, you may be uncertain about the process and its meaning. The good news? The old adage that “knowledge is power” absolutely holds true: The more you know about bankruptcy, the better prepared you’ll be to make an informed decision about whether it’s right for you. 


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One of the biggest challenges associated with bankruptcy is the preponderance of misinformation about it. Here, a seasoned OH bankruptcy lawyer addresses eight common myths and misconceptions about bankruptcy.

Myth #1:  Bankruptcy Destroys Your Credit for Life

A major concern with filing for bankruptcy is that it permanently tanks your credit. It’s true that your bankruptcy will remain on your credit report for 7-10 years, and during that time, your access to credit will be limited. 

However, this is not permanent. Not only that, but you can even expect to receive offers for low-limit, secured credit cards shortly after filing for bankruptcy.


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And while your credit score does take a hit when you file for bankruptcy, you can immediately begin working to improve your score by practicing good credit behaviors, such as monitoring your credit score and credit report, paying all of your bills on time and in full, and setting (and sticking to) a budget. 

Myth #2:  Bankruptcy Automatically Eliminates All Debts

There are two types of bankruptcy: Chapter 7 bankruptcy and Chapter 13 bankruptcy. While both types lay the groundwork for a fresh start, neither completely clears the slate.

With a Chapter 7 bankruptcy, all of your non-exempt assets will be sold, with the proceeds going to your lenders. What’s left of your unsecured debt and even some secured debt is then wiped out when the bankruptcy is discharged. At this point, you’ll no longer be responsible for making payments. 

However, child and spousal support, student loan debts, and most tax debts are not dissolvable, so you will still be obligated to make these payments. 

With a Chapter 13 bankruptcy, your debts are not wiped out but reorganized into an affordable 3-5 year payment plan. Your debt will be absolved upon completion of this payment plan. 

While Chapter 7 bankruptcy may seem preferable to Chapter 13 bankruptcy, the preferable option depends on the specifics of your situation. If you are considering declaring bankruptcy, an OH bankruptcy lawyer can offer the guidance you need to determine which type is best for you. 

Myth #3: Married Couples Must Both File for Bankruptcy 

If you and your spouse share debt in both of your names, you should both file for bankruptcy. This is because if one of you files when both of you are liable for the debt, creditors can seek payment in full from the non-filing spouse. 

However, not all debt is shared. When one spouse has debt only in their name, it may be advantageous for only one spouse to file for bankruptcy. 

Again, working with a debt-relief specialist who understands the nuances of Ohio bankruptcy law can help you take the best approach. 

Myth #4: The Best Thing to do Before Declaring Bankruptcy is to go on a Spending Spree

If all credit card debt is dissolved in Chapter 7 bankruptcy, you might conclude that spending with abandon just prior to filing will have no consequence. After all, all your debt is about to be eliminated, right? 

Not so fast. In fact, spending excessively in advance of filing for bankruptcy is a fraud, and debt resulting from fraud is not dissolvable. 

The takeaway? You’ll only be digging yourself a deeper hole if you engage in reckless spending prior to declaring bankruptcy. 

Myth #5: Bankruptcy is the Result of a Personal Failing or Character Flaw

One of the biggest misconceptions about bankruptcy is that it is exclusive to the financially irresponsible. Because many people delay or avoid bankruptcy out of shame, this is one of the most important misconceptions to correct.

While it’s true that bankruptcy is sometimes caused by poor financial management, the three primary causes of bankruptcy are actually divorce, the high cost of medical care, and job loss. Factor in an unhealthy economy and the financial challenges resulting from these causes are amplified. 

One way to reframe your mindset about bankruptcy? Remind yourself that this financial solution open to all citizens has a meaningful and valid purpose: to give “honest but unfortunate debtor[s]…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt,” according to the Supreme Court

Myth #6: You’ll Have Nothing Left After Bankruptcy

Bankruptcy exemptions vary between states and protect some of your property and assets from liquidation. Ohio’s bankruptcy exemptions include the following:

  • Real estate, including the protection of up to $136,925 of home equity per spouse
  • Cars, including the protection of up to $3,775 for one motor vehicle
  • Money, including a maximum of $475 (in cash or in the bank)
  • Retirement plans, such as IRAs, 401ks, and others 
  • Personal injury and wrongful death recoveries

In some cases, it is possible to reorganize your debts to qualify for exemptions. This is tricky territory, however, because excessive exemption planning can lead to criminal prosecution if it’s deemed to be fraudulent. 

Myth #7: You’ll Have Everything Left After Bankruptcy

Many people mistakenly believe that it’s possible to strategically shield their assets, oftentimes by repositioning them as exemptions. However, this is untrue. 

When you file for bankruptcy, you should expect to lose things. For example, any unnecessary luxury goods and/or non-exempt property are at risk for liquidation, with the proceeds going toward paying off your debt. 

Keep in mind that leased, rented, or heavily leveraged assets are not debts and are therefore not usable by creditors. 

Myth #8: It’s Rarely Your Only Option

As mentioned earlier, bankruptcy exists for a reason, and it is sometimes the right choice. However, it’s far from the only option if you’re feeling overwhelmed by debt. Alternatives to bankruptcy include credit counseling, debt consolidation, debt management plans, and debt settlement. 

This is also where consulting with an OH bankruptcy lawyer can be helpful. In addition to helping to guide you through the complex bankruptcy process if/when it is appropriate, a knowledgeable and compassionate lawyer can also help you understand all of your options in order to identify the one that will help you achieve financial freedom while minimizing the impact on your credit, assets, and life.   

Myth #9: Filing for Bankruptcy is a One-Time Thing

Unfortunately, it’s possible to end up in financial jeopardy on more than one occasion in your lifetime. Contrary to common misconception, you’re not out of luck if this happens to you. 

While many people believe that you can only file for bankruptcy once, you can actually file for Chapter 7 and Chapter 13 every eight and two years, respectively. (In the case of the latter, however, repayment plans usually exceed two years, so any subsequent filings would take after the previous reorganization is completed.) 

Bankruptcy: How to Get the Fresh Start You Need

While going through bankruptcy is difficult, it can also be a powerful lifeline when drowning in debt. If you’ve been avoiding filing for bankruptcy due to one or more of these misconceptions, it may be time to revisit your options. 

Whether you’re recovering from a business failure, mortgage crisis, health issue, or other financial setbacks, filing for bankruptcy under the guidance of an experienced and empathetic debt-relief legal specialist can empower you to move forward with your life. 

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