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Study shows most Americans don’t understand Chapter 7 bankruptcy

Some people may hesitate to file for bankruptcy for fear of what others may think. A new survey conducted by YouGov shows that those numbers are shrinking, though, as fear over possible ramifications to a person’s credit report edges out the perceived shame. According to the survey, only 26 percent of 1,151 adults surveyed were worried about the shame associated with bankruptcy, but a full 62 percent were worried about the hit to their credit ratings.

One contributing factor to the low percentage of people who are worried about the perceived shame may be the fact that bankruptcy is affecting more and more people on a personal level. According to the survey, 18 percent of American households have filed for bankruptcy, and 23 percent of American households have considered bankruptcy as an option. These numbers are even higher for those making under $40,000 a year. In that income bracket, a full 30 percent of households have considered bankruptcy as an option.

Another interesting trend revealed in the survey was that most Americans don’t understand what a Chapter 7 bankruptcy is and how it works. Only 28 percent of Americans knew that alimony debt can’t be discharged in a Chapter 7 filing, and only 33 percent were aware that federal taxes cannot be cancelled. Fourteen percent of Americans knew that bankruptcy can only be filed once every eight years.

A lack of understanding of how a Chapter 7 bankruptcy works can cause serious issues for someone attempting to file in an attempt to discharge debt or stop a foreclosure. This is one reason why talking with someone with a thorough knowledge of the process is so important to ensuring that individuals come out on the other side with a fresh financial start.

Source: PR Newswire, “Only a quarter (26%) find bankruptcy shameful: 62% more worried about credit rating” No author given, Feb. 25, 2014

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