People often think of “bankruptcy” as a negative word. When you are dealing with more debt than you can manage, or your financial situation is out of control, bankruptcy can be a reliable debt-relief tool. For obvious reasons, bankruptcy should never be the first option to get relief from debts. There are options like debt consolidation that can help some individuals. If you want to file for bankruptcy, the first step is to talk to an experienced attorney. You need to learn more about the process and if you can consider other options. There are two basic options – Chapter 7 and Chapter 13. In this post, we are discussing the key aspects of Chapter 7.
Who is eligible for Chapter 7?
There is a “means test” for Chapter 7 bankruptcy. To file for Chapter 7, your income should be less than the median income of your state. If your income is more than the median income, the court will consider if you have enough income to pay for debts after paying for monthly expenses, including repayment of mortgage and car loans. If you cannot file for Chapter 7, you still have the choice of Chapter 13. An attorney can explain how you can get the maximum relief.
Advantages of Chapter 7
- First and foremost, Chapter 7 gives an automatic stay, which prevents your creditors from harassing you further. Whatever income you earn after filing for bankruptcy, it remains to you.
- Chapter 7 allows you to discharge most of your unsecured debts, including credit bills, unpaid rent, and medical bills. You can also discharge most unsecured personal loans.
- Chapter 7 also allows you to retain your assets, including your house and car. This is when you are capable of making the repayment as per the existing schedule.
- Chapter 7 bankruptcy can be completed in a record time. You can finish the entire process within six months, and from there on, it is a fresh start.
Disadvantages of Chapter 7
- On the flip side, you cannot discharge all unpaid and unsecured loans. For instance, you will still need to pay student loans, child support, and alimony if you were doing so before filing bankruptcy.
- Chapter 7 does impact your credit score and will appear on your credit record for up to a decade. You cannot also file for bankruptcy again in the next few years.
Check with an attorney to know if Chapter 7 is the right choice for your circumstances.