Chapter 7 bankruptcy is a great way for people to relieve debt that’s become overwhelming. However, the process is often confusing and many people don’t know what they’re talking about when discussing Chapter 7 bankruptcy. That causes misinformation and confusion to spread.
To ensure you’re making the right decision, you may need to learn what’s commonly misunderstood about Chapter 7 bankruptcy. Here’s what you should know:
Myth 1: Liquidation bankruptcy isn’t the same as Chapter 7
Truth: Simply put, liquidation bankruptcy is another name for Chapter 7 bankruptcy. The reason for this is that the debtor’s nonexempt property is used to satisfy creditors. However, most people who qualify for Chapter 7 don’t have any nonexempt assets, so it’s seldom an issue.
Myth 2: You’ll lose all of your property in Chapter 7
Truth: As stated above, debtors will have their nonexempt property liquidated to resolve debt obligations. Debtors have exempt and nonexempt assets. Exempt assets are protected from liquidation. Most assets debtors own are exempt, and that can include things like their car, their home and more.
Myth 3: You can choose what property to keep in a bankruptcy
Truth: Nonexempt assets are assets that are not necessary to maintain a minimum standard of living. This could include an art collection, vacation home and other investments. You may have some ability to protect a few things, but it is limited.
Myth 4: There’s no way to recover your credit score after bankruptcy
Truth: It’s true that a creditor’s credit score will drop dramatically after filing for bankruptcy. This, essentially, ensures that creditors can’t take on more debt and learn from their past. However, a credit score can be raised with careful planning.
Myth 5: You can file Chapter 7 bankruptcy whenever you want
Truth: Creditors, in theory, have no limit to the number of times they can file for bankruptcy. However, creditors will have to wait eight years before they can file for Chapter 7 bankruptcy following a previous filing. So, the truth is that filing for bankruptcy is a finite process.
Are you still unsure about Chapter 7 bankruptcy? For most debtors, Chapter 7 is the right path, but some find relief through Chapter 13, instead. You may need to learn your legal options to ensure you’re making the right decision.
