If a consumer in Frankfort, Illinois, believes they have no way out of debt, they might consider bankruptcy. Chapter 7 removes debt by requiring the selling of some assets while Chapter 13 is a structured repayment plan, and both can help get debts discharged. However, there are some myths still circulating that may make a consumer hesitate to file.
Debtors must give up everything
It is a common myth that debtors must give up all assets, but it depends on the type of bankruptcy. Chapter 13 doesn’t require debtors to sell any assets, and certain assets may get saved with exemptions.
Unless the debtor is behind on mortgages or auto payments, they usually won’t lose their primary vehicle or home. However, bankruptcy does not erase liens, so consumers should stay current on payments to avoid losing property.
Bankruptcy always closes a business
Business owners do not always have to close their business. Business owners who struggle with debt and wish to stay open may choose Chapter 13 or Chapter 11.
If a debtor files personal Chapter 7, it won’t affect their business, and some business debt might get discharged. If the debtor has more business debts than consumer debts, they may be able to avoid the Chapter 7 means test that determines eligibility.
Bankruptcy ruins credit forever
While bankruptcy can impact credit for a short time, consumers can still recover and get credit soon after discharge. However, many lenders look more favorably on a Chapter 13 or Chapter 11 bankruptcy than on Chapter 7 since the debtor made an effort to repay debt.
There are lenders who accept consumers with a recent bankruptcy discharge, but others require average credit. The debtor can apply for government-backed mortgages, but they often require waiting periods.
Sometimes, bankruptcy is the only option for consumers, but it doesn’t have to be negative. Knowing the truth behind some common myths can help consumers make the right choice in their situation.