Chapter 7 bankruptcy can be a powerful tool for relieving debt that’s become overwhelming. However, the process is often confusing, and many people misunderstand or misrepresent how it works. This can lead to the spread of misinformation.
To make an informed decision, it’s important to separate fact from fiction. Discover 5 common myths about Chapter 7 bankruptcy– and uncover the truth you need to know.
Myth 1: Liquidation bankruptcy isn’t the same as Chapter 7
Truth: Simply put, liquidation bankruptcy is another name for Chapter 7 bankruptcy. It’s called “liquidation” because, in some cases, a person’s nonexempt property may be sold to pay off creditors. But here’s the good news: Most people who qualify for Chapter 7 don’t have any nonexempt assets, so they usually don’t lose anything.
Myth 2: You’ll lose all of your property in Chapter 7
Truth: As stated above, debtors may have to give up their nonexempt property to help pay off their debts. People generally have two types of assets: exempt and nonexempt. Exempt assets are protected from liquidation and can’t be taken. 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 your credit score will drop dramatically after filing for bankruptcy. That drop serves as a safeguard, making it harder to take on new debt right away. However, the idea that recovery is impossible is a myth. A credit score can be rebuilt over time, with responsible financial habits and 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 people, 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.
If you’re interested in learning more about your options, our bankruptcy attorneys offer free consultations. Learn more or contact us today to get started.
