What Is Chapter 7 Bankruptcy?
Chapter 7 is a form of bankruptcy that will place an automatic stay on your debts. It is sometimes referred to as liquidation bankruptcy. It will allow you to clear away most, if not all of your unsecured debt. If you are behind on your bills and do not see yourself getting out of debt, then filing for bankruptcy may be your best option.
Do You Qualify for Chapter 7 Bankruptcy?
You will need to make sure that you qualify for chapter 7 before you attempt to file. If you have filed for chapter 7 in the past, then you will have to wait seven years before you file again. You will also have to go through credit counseling before you file for chapter 7. You have six months to file for complete credit counseling after you file for bankruptcy.
Additionally, you will need to take a means test. You will need to have little to no disposable income in order to pass the means test. Your monthly income from the past six months will be compared to the median income in your area.
Keep in mind that it is still possible for you to qualify for chapter 7 even if your income is above the median. Your expenses will be compared to your income. If your expenses leave you with little income, then you may still qualify for chapter 7.
Types of Debts That Can Be Charged in Chapter 7
Medical bills, unsecured loans and credit card debt are examples of debts that can be discharged during bankruptcy. It will typically take anywhere from four to six months to complete the process. Alimony, child support, certain tax debts and federal student loans are examples of some of the debts that you will not be able to discharge.
Will I Lose My Property?
It is possible for you to lose some of your assets if you file for chapter 7. Property that is not your primary home, valuable artwork, expensive clothing and expensive musical instruments are examples of some of the assets that you can lose. A trustee can take your assets, sell them and distribute the funds to your creditors.
A trustee cannot take non-exempt assets. This includes public benefits, alimony, child support, certain insurance benefits and up to $13,400 in personal property.
Effects on Credit
Chapter 7 bankruptcy will cause your credit score to drop drastically. It can stay on your credit report for up to 10 years. However, the impact of bankruptcy will lessen over time.
How to File for Bankruptcy
You will need to take the following steps to file for chapter 7.
- Attend counseling
- Fill out the forms
- Send the documents to the trustee
- Meet with the creditors
- Go through budget counseling
- Wait for the discharge notice
Because bankruptcy law can be complicated, it is a good idea to hire an attorney. Your bankruptcy attorney can ensure that everything is done correctly.