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Myths About Losing Property
There are so many myths surrounding Chapter 7 Bankruptcy.
Myths About Losing Property
- Myth: You will lose everything you own in a Chapter 7 bankruptcy.
- Truth: This is one of the most common myths. The vast majority of people who file for Chapter 7 do not lose any property. Bankruptcy laws include state-specific exemptions that protect essential assets, such as your home (up to a certain value), car, retirement accounts (like 401(k)s and IRAs), household goods, and personal belongings.
- Myth: Your retirement savings will be wiped out to pay creditors.
- Truth: Retirement funds in accounts like 401(k)s and IRAs are generally protected by law and exempt in Bankruptcy.
- Myth: The court will send someone to your house to inspect your belongings.
- Truth: This almost never happens. While a bankruptcy trustee is appointed to oversee your case, they rarely, if ever, visit your home.
Myths About Credit and Finances
Myths About Credit and Finances
- Myth: Your credit will be ruined forever.
- Truth: A Chapter 7 bankruptcy can stay on your credit report for up to 10 years, but its impact lessens over time. Many people who file for bankruptcy have damaged credit already, and the discharge of debt can be the first step toward a fresh start. Many filers can start rebuilding their credit within a year or two and may even receive new credit offers soon after filing.
- Myth: You will never be able to get credit again.
- Truth: This is false. With a clean slate, many debtors become a more attractive lending risk for certain creditors because they no longer have other debts and cannot file for Chapter 7 again for eight years. Many people successfully secure car loans and mortgages within a few years after filing.
- Myth: You can't file for bankruptcy if you have a job.
- Truth: Having a job does not automatically disqualify you. Chapter 7 has an income limit based on a "means test" that compares your income to the median income in your state, taking into account expenses. Many people with jobs successfully pass the means test and qualify.
- Myth: You should max out your credit cards before filing for bankruptcy.
- Truth: This is considered bankruptcy fraud. Creditors can object to having debts discharged if they were incurred shortly before filing in anticipation of bankruptcy.
Myths About The Filing Process
Myths About The Filing Process
- Myth: You can only file for bankruptcy once.
- Truth: You can file for Chapter 7 every 8 years.
- Myth: Filing for bankruptcy will get rid of all your debts.
- Truth: While Chapter 7 discharges many types of unsecured debt (like credit card bills and medical expenses), it does not eliminate all debt. Nondischargeable debts typically include:
- Myth: If you are married, both spouses must file together.
- Truth: A married individual can file alone. Whether it's better to file jointly or separately depends on the couple's specific financial situation and whether they share responsibility for debts.
Myths About Public Perception
Myths About Public Perception
- Myth: Everyone will find out you filed for bankruptcy.
- Truth: While bankruptcy filings are public record, they are not typically publicized. Unless you are a prominent public figure, it is highly unlikely that anyone other than your creditors and the court will know.
- Myth: Only financially irresponsible people file for bankruptcy.
- Truth: Many people are forced into bankruptcy by unforeseen circumstances, such as a serious medical illness, job loss, divorce, or business failure. Bankruptcy is a legal tool designed to help individuals regain control of their finances and is not a moral failing.
