Chapter 7 bankruptcy stands out as the most common type used by individuals. However, due to its widespread use and the complexity of the bankruptcy process, several misconceptions have sprung up around it. These misconceptions can deter people from seeking the financial relief that Chapter 7 bankruptcy can provide.
Learn about these misconceptions to get a clear understanding of what Chapter 7 bankruptcy entails and how it can help individuals in financial distress.
Misconception: Chapter 7 bankruptcy wipes out all debts
One common misconception is that filing for Chapter 7 bankruptcy will erase all debts. While Chapter 7 bankruptcy can discharge many types of debt, it does not eliminate all forms. Debts like student loans, alimony, child support and certain tax obligations often remain even after filing.
Misconception: Filing for Chapter 7 bankruptcy means losing everything
Another misconception is that filing for Chapter 7 bankruptcy means losing all personal property. In reality, bankruptcy law provides for exemptions that allow individuals to keep certain essential assets, like a home or car, up to a certain value.
Misconception: Only financially irresponsible people file for bankruptcy
There is a belief that only financially irresponsible individuals file for bankruptcy. This is not true. Many people file for bankruptcy due to unforeseen circumstances such as medical emergencies, job loss or divorce.
Misconception: Bankruptcy permanently ruins credit
Many fear that filing for Chapter 7 bankruptcy will permanently damage their credit. It is true that bankruptcy will affect one’s credit, but its impact diminishes over time. Individuals can start rebuilding their credit immediately after filing.
Misconception: Filing for bankruptcy is a complex process
While the bankruptcy process does involve several steps and a significant amount of paperwork, it is not unmanageable.
Understanding the truth behind these common misconceptions about Chapter 7 bankruptcy can enable individuals to make informed decisions and find the financial relief they need.