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.
What is Chapter 7 bankruptcy?
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.
How to qualify
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
Will I lose everything?
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.