Your biggest fears about Chapter 7 bankruptcy debunked

If you are behind on your bills, you may have heard of the quick relief that Chapter 7 bankruptcy can bring you. However you may have also heard some unsavory things about the Chapter 7 process that have discouraged you from seeking the help you need. However, the good news is that most of these things are myths.

You will lose all your property

Probably one of the most vicious rumors out there is all Chapter 7 filers have to sell all their property to pay their debts. However, for most people, this is simply not true. Although Chapter 7 involves a liquidation sale, most people lose nothing, as most important property is exempt from the sale by state or federal law. These assets include the equity in your home and car as well as retirement assets and most personal belongings. Because of the exemptions, most filers of Chapter 7 bankruptcy complete it after selling little or no property.

Your credit will be ruined forever

Another negative thing that many people hear about Chapter 7 bankruptcy is that it will destroy your credit rating, making you forever ineligible for getting a loan, mortgage or credit card. Although filing bankruptcy (Chapter 7 or otherwise) will likely cause your credit score to fall, this is only a temporary setback. The truth is, if you exhibit responsible spending habits after you complete bankruptcy, your credit score will return to respectable levels within a year or two. However, many people use the temporary effect on credit scores as an excuse to do nothing, which can harm credit scores over the long term more than a bankruptcy can.

You do not qualify for relief

You may have heard that Congress made it much harder to qualify for bankruptcy many years ago. Although Congress did change the qualification requirements for Chapter 7 to include a means test, the test itself is relatively easy to pass.

During the means test, the court examines your income. If your income is below the median for a similar household of your size in Alabama, you automatically qualify for Chapter 7 relief. However, if your income is above this amount, you may still qualify. In such cases, the court looks at your disposable income-what is left over after you pay for bills and necessary expenses. If what is left over is below a certain amount, you also qualify. Even if your income is above the maximum amount, you still can qualify for Chapter 13 bankruptcy, which can also offer you relief from your debts.

Get legal advice

Like any debt relief solution, bankruptcy should only be used after receiving advice from an experienced bankruptcy attorney. An attorney can examine the nature of your debt problem and recommend the best solution for someone in your unique situation.