Bankruptcy not only carries a stigma, but is also clouded in myth. Bankruptcy myths arise mostly from the history of 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 bankruptcy is that bankruptcy law varies from state to state.

These factors have an important bearing 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 this process are not remotely true.

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

A Chapter 7 bankruptcy involves the bankruptcy trustee gathering up and selling 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. The net result is that the debts to those creditors are fully discharged.

In this process it is not true that all your debts are simply wiped out. When property loans or car loans are secured by assets such as your house or car, those loans will normally remain in place. Certain debts will remain in place, Chapter 7 or not. These include things like child support, alimony, or debts resulting from fraud that have been assigned to you by the courts. Government-guaranteed student loans are also not forgiven in a Chapter 7.

Myth #2 – Everyone in town will know about my bankruptcy.

It is true that the record of your bankruptcy is not hidden from the public. Anyone who wants to go to the trouble to learn 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 one place where you can find an updated list of people who have filed for bankruptcy either recently or in the past. The number of bankruptcy cases is so high, the list changes so often, and the jurisdictions are so diverse that unless a publication or directory has a large staff devoted to watching these figures they are simply will not bother.

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

This is usually one of the biggest fears that most people have about bankruptcy and the thing that discourages them from filing. They have vague visions of debtors prison in their heads and assume they will have to start from scratch – no house, no car, no furniture, no computer, iPod, camera, or even tools required to make a living.

If it was actually like this very few people would ever file for bankruptcy. The reality is that bankruptcy laws differ from state to state. But there are exemptions in every state that protect special categories of assets from being seized by your creditors. In most cases these include your house, your car, most household goods and personal items like clothing, as well as money in certain types of retirement plans.

These are just three of the most popular myths about bankruptcy. There are many others. When you are considering filing for bankruptcy you would do well to seek the advice of a bankruptcy attorney who specializes in bankruptcy cases. There is no better way to get an accurate explanation of the laws in your state, and good, solid information about which course of action is best for you.