Life often has unexpected twists and turns, and they are not always for the better. If job loss, divorce or illness caused you financial instability, you might have resorted to the use of credit cards to keep up with day-to-day costs of living. These situations have a way of pulling one deeper into a spiral of debt. Fortunately, Chapter 7 bankruptcy offers a fresh financial start.
Although you may want to consider other debt relief options, you may find that Chapter 7 bankruptcy is the quickest way to get rid of most debts while receiving protection against debt collectors. However, you may have to sacrifice some nonexempt property that will be sold at auction to pay your creditors. In exchange, the bankruptcy court will discharge unsecured debts, such as credit card debt and medical debt.
Can anyone file for Chapter 7?
You will have to complete a means test to determine eligibility for filing Chapter 7 bankruptcy because there are income limitations. This two-part test will evaluate the amount of your debts along with your average income per month. If you do not qualify for this option, you will have to consider filing for Chapter 13 bankruptcy.
Here are five advantages of filing for Chapter 7 Bankruptcy:
1. You will receive a fresh start. The U.S. Bankruptcy Code aims to provide people in similar circumstances as yours the opportunity to get back on track. This is done by eliminating some of your debts, and freeing you from personal liability for those debts.
2. The bankruptcy estate will not include your future income or any property you acquire after you have filed for Chapter 7. However, in the 180 days following the filing, the court may attach inheritances, divorce settlements, death benefits or life insurance proceeds that you receive.
3. Chapter 7 has no limitations related to the amount of your debt obligations.
4. Discharged debt will free you from any further obligation to those creditors.
5. You can eliminate most of your debt within two to three months. The court typically discharges the debt after the distribution of funds from liquidated assets to creditors.
Are all debts eliminated in Chapter 7 bankruptcy?
The bankruptcy court will not discharge certain debts, and you will remain responsible for payments. However, the money saved from the discharge of unsecured debts, such as credit card and medical debts, may enable you to pay the following debts where applicable:
Student loans - unless a court decides differently
- Child support
- Debts acquired by fraud
- Certain taxes
- Tax lien
- Mechanic lien
It is never easy to make the decision to file for bankruptcy, and you may want to discuss your dilemma with an experienced bankruptcy attorney. A skilled lawyer will answer all your questions and guide you through the means test and other legal proceedings of such a filing. Furthermore, you will learn about the ways in which the Bankruptcy Code will protect you. Armed with all the relevant information you may make informed decisions about your path to re-established financial stability.