If you’re unable to get out of debt, filing for Chapter 7 bankruptcy can be an effective way to quickly eliminate the problem. However, bankruptcy is not a quick fix. It comes with its own drawbacks and can impact your financial health for years after the fact. If you are seriously considering filing for bankruptcy, here’s what you need to know.
Chapter 7 bankruptcy is the fastest and most common type. It is sometimes known as “liquidation bankruptcy” because it involves discharging most unsecured debt, like credit cards, personal loans, and medical bills. It does not include some forms of debt like child support, property taxes, and student loans.
Chapter 7 often takes three to six months to complete.
To qualify for Chapter 7 bankruptcy, you must meet certain requirements, including:
Your debts exceed half your annual income
It would take more than five years to pay off your debt
Debt interferes with your daily life, personal relationships, and sleep
You must earn less than the state median income
You must submit to a “means test” which examines your financial records
No! Creditors may request that you sell some assets to pay down your debt, but many assets—like your home, car, and necessary work equipment—are protected by exemptions. That means you can keep them while you go through the bankruptcy proceedings.
WHAT DO I NEED TO DO TO FILE FOR CHAPTER 7?
To file for Chapter 7, you must file an official petition, schedules, and a statement with your finances. These forms include all your assets and debts and include will include recent financial information. Make sure the information is 100% accurate because they are signed under penalty of perjury.
After appointing a trustee, the bankruptcy court sends a notice to all your creditors that you’ve filed bankruptcy. You must then meet with the trustee and answer questions about your assets and liabilities. The trustee will take control of any assets that aren’t exempt, sell them, and use those funds to pay case administration. The remaining amounts are used to pay your creditors in order of priority.
Within 4-6 months of filing, the discharge of your debt may happen—provided your creditors do not appeal. It eliminates your personal liability for the debts that existed when your case began.
Bankruptcy can give you a fresh start in your finances, but it does come with some consequences. Bankruptcy filings remain on your credit report for 10 years and can impact loan eligibility and interest rates. It may also impact your employment. For many people, these temporary setbacks may be offset by the benefits.
Chapter 7 bankruptcy is a serious solution to a debt problem. It involves the liquidation of nearly all assets and should not be taken lightly. Call the Huff Law Office today at 859-647-0713 for a free consultation and learn how I can help you understand all the consequences and go over all your options for fixing your finances.