Chapter 7 bankruptcy is one of the most powerful tools available to people with high levels of personal debt. In a Chapter 7 bankruptcy filing, people struggling to fulfill their financial obligations can protect themselves from aggressive collection efforts. They may be able to discharge certain eligible debts.
Despite how beneficial Chapter 7 bankruptcy can often be, many people want to avoid this type of bankruptcy at all costs. Their aversion likely stems from common myths that people share about Chapter 7 bankruptcy proceedings. People who believe any of the three myths below may need to learn more about bankruptcy so that they can make an informed choice about their finances.
Myth 1: Filers must surrender all of their assets
One of the most pernicious myths about Chapter 7 bankruptcy is the idea that the filer must give up all of their valuable property. People who have retirement savings and who own their own homes may avoid filing for Chapter 7 bankruptcy because they don’t want to lose their property.
While Chapter 7 bankruptcy does sometimes require asset liquidation, many filers can protect their property. There are exemptions available that allow people to protect their retirement savings and other key resources from liquidation during bankruptcy.
Myth 2: Chapter 7 bankruptcy is a permanent credit blemish
Many people have heard that the credit bureaus can report bankruptcy discharges for longer than other issues. Some people even believe that there may be a permanent record of their bankruptcy available to lenders and employers for the rest of their lives.
Technically, the credit bureaus can report Chapter 7 bankruptcy for longer than most other financial issues. A Chapter 7 discharge may remain on an individual’s credit report for up to 10 years. However, after a decade passes, the record of the bankruptcy is no longer visible on a credit report.
Myth 3: People are judgmental about bankruptcy
While bankruptcy is technically part of the public record, most people never learn about an acquaintance’s bankruptcy unless the filer shares their story. The courts do publish information about bankruptcy petitions in local newspapers. However, most people do not review local newspapers, let alone the section about legal filings.
While bankruptcy does show up on a credit report, it does eventually come off of the credit report. Even when people are aware of the bankruptcy, they may not be as judgmental as people fear. With rising medical expenses and other economic challenges, bankruptcy has become more common. The social stigma attached to bankruptcy is far lower now than it was decades ago.
Many people can complete a Chapter 7 bankruptcy in a matter of months with the right support. Discharging debts with a Chapter 7 bankruptcy filing can help people regain control after a period of financial hardship.
