What is Chapter 7 Bankruptcy?
Chapter 7 is by far the most used form of personal bankruptcy (the other, less used form being Chapter 13). By filing for Chapter 7 bankruptcy, you can get rid of your unsecured debts like medical bills, credit cards, and personal loans. This can be a great tool to change your financial life, but there are consequences to consider.
There’s no doubt that bankruptcy is a scary consideration, and the decision to file or not will have a lasting impact on your future credit, financial reputation, and quality of life. But I’m here to help you navigate these unsettling waters.
It’s important to understand that filing for bankruptcy is not a failure, but rather it can be a beneficial last resort to help you regain control over your finances and move forward with your life. Managing debts is stressful, and especially with the mass unemployment under the COVID-19 pandemic, countless hardworking individuals are finding themselves dodging creditors and struggling to make monthly payments. Let me help you take a positive step toward a more financially stable future.
HOW DOES CHAPTER 7 BANKRUPTCY WORK?
When you file for Chapter 7 bankruptcy, the court will immediately place a temporary stay on your debts, meaning creditors may no longer collect payments, foreclose on your home, garnish your wages, repossess your home, evict you, or turn off your utilities. After that, the court will assume legal possession of your property and appoint a bankruptcy trustee to your case.
The trustee will review your finances and assets and sell your property in order to repay your creditors. Don’t worry, however — much of your valued personal property, such as your house, your vehicle, and most of your clothing and jewelry, is exempt from this process. Additionally, the trustee will schedule and oversee a creditor meeting (also known as a 341 hearing) at the bankruptcy courthouse, during which you’ll be asked to answer questions under oath about your filing.
At the end of the process (often as soon as three months after your filing), the courts will discharge your remaining debts, meaning you will no longer need to pay them. You have effectively earned a fresh start!
ADVANTAGES OF CHAPTER 7 BANKRUPTCY
As I mentioned, filing for Chapter 7 bankruptcy represents a positive step toward regaining control of your financial life. Here are the benefits of filing:
Creditors must cease all collection activities.
There is no minimum amount of debt required to qualify.
The process will discharge all of your eligible debts, including credit cards, medical bills, and other unsecured debts. You will not need to set up a repayment plan — those debts will be gone.
Unless they are very expensive, you usually get to keep your car and house.
The process is quick — your debts are often discharged within three months — and you can start rebuilding your credit soon after.
DISADVANTAGES OF CHAPTER 7 BANKRUPTCY
Although your debts will be wiped out, there is still a cost to filing for bankruptcy. Here are the disadvantages to consider:
Some debts, such as alimony, child support, student loans, and mortgages, are not eligible for discharge.
Your credit will take a hit. Bankruptcy will leave a serious mark on your credit reports for up to 10 years. However, you will be able to begin rebuilding your credit score within a few months of filing.
If you don’t already have one, it will be difficult to get a mortgage moving forward.
You will have to give up your credit cards. However, you can usually apply for new cards or lines of credit as soon as one year after filing.
Often what holds people back from filing for bankruptcy is the emotional weight of it. They see bankruptcy as giving up, and they don’t want to endure the supposed shame of bankruptcy court.
While filing for bankruptcy is undoubtedly a tough and serious decision, it’s important to remember that it’s actually a positive step toward financial stability, an effective way out of what often feels like a hopeless situation. In fact, bankruptcy is a legal solution specifically designed for people in your shoes. So, why not take advantage of the laws in place to help you? No longer will you have to endure endless calls and letters from collectors, or feel like you’re treading water and drowning in debt. You’ll be able to face your future with a clean slate.
Finally, keep in mind that some of the most successful and affluent people in the world have gone through bankruptcy at some point in their lives. Some notable examples include Abraham Lincoln, Will Smith, Cyndi Lauper, Walt Disney, Marvin Gaye, Elton John, and Lady Gaga — believe it or not, you’re in good company!
IS CHAPTER 7 BANKRUPTCY RIGHT FOR ME?
You should consider filing for Chapter 7 bankruptcy if:
You don’t have many assets.
Your problem debt is more than 40 percent of your annual income.
It would take five or more years to pay off your debt, even if you take extreme measures.
Your problem debts are eligible for discharge. Child support, alimony, mortgages, and student loans unfortunately are not.
Give me a call today to discuss if bankruptcy is right for you.