Filing for Chapter 7 bankruptcy can provide much-needed relief for people struggling with unmanageable debt. However, there are some common misconceptions about how the Chapter 7 process works.
You should understand the truth behind these myths before you decide if you should file.
Myth 1: filing for Chapter 7 means you will lose all your assets
One of the biggest myths about Chapter 7 is that filing means the court will seize and liquidate all of your assets. In fact, there are exceptions. Most filers can retain exempt property such as a primary home, vehicle, clothing and household goods. The court trustee appointed to your case determines what assets qualify for exemption based on federal and state law.
Myth 2: a Chapter 7 bankruptcy stays on your credit report forever
While a Chapter 7 bankruptcy remains on your credit report for 10 years, it will not continue hurting your credit indefinitely. Credit scoring models place less emphasis on bankruptcies as time passes. Rebuilding credit after bankruptcy is possible. With responsible use of credit after filing, you can recover within a few years.
Myth 3: you can only file Chapter 7 bankruptcy once
Filing for Chapter 7 bankruptcy does not necessarily preclude you from filing again in the future. The U.S. bankruptcy code imposes an 8-year waiting period, after which you become eligible again. Second-time filings are possible if circumstances warrant it.
Understanding the facts about the Chapter 7 process can help you make the best decision regarding your financial situation. The courts received more than 300,000 Chapter 7 bankruptcy filings in 2021. As you can see, this is a viable solution for many who struggle with overwhelming debts.