Chapter 7 bankruptcy serves as a lifeline for low-income adults who are struggling with insurmountable debt. However, numerous myths and misconceptions about the process can deter people from seeking this consequential form of debt relief until their finances have spun truly out of control.
Ultimately, understanding what is – and is not – true about Chapter 7 bankruptcy can empower debtors to make informed decisions about their rights and options.
Myth: Filing for Chapter 7 bankruptcy causes filers to lose everything
It is not true that filing for Chapter 7 bankruptcy results in the loss of all of one’s property. State and federal bankruptcy laws provide exemptions that allow most low-income debtors to keep all of their assets. Exemptions can cover a range of property, including equity in a home, car, household goods, clothing, government benefits and even certain retirement accounts.
While it is true that the trustee assigned to a Chapter 7 bankruptcy case is empowered to sell off non-exempt assets to repay a debtor’s creditors, this is a very rare occurrence. For most Chapter 7 filers, bankruptcy does not result in the loss of any assets.
Myth: Bankruptcy permanently ruins a filer’s credit
While it is true that a Chapter 7 bankruptcy will appear on a filer’s credit report for ten years, a filer can start rebuilding their credit as soon as their eligible debts are discharged.
Additionally, it’s important to understand that eliminating overwhelming debt through bankruptcy can sometimes make a filer a more attractive candidate to creditors compared to someone struggling with unmanageable debt.
Finally, it’s important to stress that the “weight” of a bankruptcy filing on one’s credit is minimized over time. As long as a filer engages in responsible approaches moving forward, potential lenders will place less and less emphasis on the filing as time goes by.
Myth: Only irresponsible people file for bankruptcy
Traditionally, there has been a stigma attached to bankruptcy that suggests only financially irresponsible people file for this kind of debt relief. This is simply not true. Filing for bankruptcy is a legal way to address insurmountable debt and regain financial stability. When circumstances beyond one’s control lead to overwhelming debt, bankruptcy can serve as a responsible solution.
At the end of the day, filing for Chapter 7 bankruptcy offers a viable solution for low-income debtors burdened by overwhelming debt. If you are struggling to manage your debts, it’s important to make truly informed decisions about your debt relief options, not to shrink away from assistance due to misinformation.
