5 Things to Know About Chapter 7 Bankruptcy
You can be forgiven if your first reaction after hearing the term “Chapter 7” is dread.
Chapter 7 bankruptcy is the most common form of bankruptcy petition filed in America.
While it may give a debtor a new financial start when in a financial crisis, that doesn’t mean it’s a bed of roses. But it’s also worth noting that the negative impact isn’t forever.
Chapter 7 bankruptcy is a court process through which individuals can eliminate most of their unsecured debt, such as card debt, personal loans, and medical bills.
To file Chapter 7, you will have to pass income tests. Your income will be compared to the median income in the state. If your income is below the median, you will qualify to file. If your income is above the median, you may have to consider aChapter 13 filing.
If you’re considering this option, here are five things to know about Chapter 7 bankruptcy.
1. Not All Debts Are Dischargeable
One common misconception about Chapter 7 bankruptcy is that the process wipes out all debt, but that isn’t the case. Sure, it eliminates most unsecured debt, but the odds are it won’t relieve you of financial obligations connected to student loans, spousal support, child support, recent tax debt, and some other types of debt.
It’s a good idea to retain the services of a bankruptcy lawyer who can answer your questions and fill you in on what you should know so you can make informed choices.
Understanding what debt can and cannot be eliminated is imperative before deciding whether or not to file.
2. You Could Lose Some Property
People who find themselves between a rock and a hard place often fear that a Chapter 7 filing means losing property.
Your trustee will go over your case and can sell non-exempt items in order to raise funds to distribute to creditors. Fortunately, most individuals can retain most, if not all, of their property because of exemptions under state and federal law.
So, a family home will likely be exempt. But that’s not all. A lawyer can fill you in on the details.
3. The Process Takes Approximately 3–6 Months
Chapter 7 bankruptcy is quick compared to other types of bankruptcy. The following is an overview of the process in general:
Credit Counseling: You will be required to undergo a credit counseling session with an agency approved within 180 days of filing.
Filing the Petition: You fill out forms that you file with the bankruptcy court, and these include a list of your property, debts, income, expenses.
Automatic Stay: When you file, there is an automatic stay in place, which stops most collection activities, such as foreclosure, wage garnishment, and creditor harassment.
Meeting of Creditors: You go to a short meeting where the trustee and some creditors may ask you questions regarding your finances.
Discharge: Assuming everything has proceeded normally, the court discharges eligible debts.
4. Chapter 7 Bankruptcy Will Hurt Your Credit
Chapter 7 bankruptcy will really hurt your credit. The bankruptcy will be on your credit report for up to 10 years. During that time, you’ll have a harder time getting loans.
It will take several years before you start to see improvements. But the most important thing to keep in mind is that your credit score will eventually rebound. All you need to do is be financially responsible — paying bills on time, for instance — to recover over time.
5. You Can’t File Again Right Away
If you’ve previously filed a Chapter 7 bankruptcy, you may find it’s too soon to file again. That’s another reason why you should speak to a bankruptcy lawyer. You’ll want to understand the ins and outs of how soon you can file after a filling.
No one wants to file for bankruptcy. But sometimes it’s the best option available — and it can be a means of turning over the page and starting fresh. Speaking to a lawyer can help you understand the process and make the best decision for your case.
