Chapter 7 Bankruptcy
If you have to file for bankruptcy, but you’re not sure what procedure you should opt for, you might want to consider Chapter 7. In this guide, you’ll learn what legal steps you should take to file under this chapter, its main advantages, and drawbacks.
What Is Chapter 7?This is the easiest and most common bankruptcy form, often referred to as liquidation or straight bankruptcy. Unlike Chapter 13, Chapter 7 doesn't require debtors to put together a repayment plan.
However, through this procedure, the debtor's assets which are not protected by exemption will be sold. The trustee is entitled to sell these assets to repay the creditors, as per the specifications of the Bankruptcy Code. Consequently, the debtor is discharged.
For assets to be exempt, they have to be compliant with the requirements of certain state statutes that can protect them.
Chapter 7 may apply to companies, partnerships, and individuals alike. When applied to individuals, the person in question will most likely keep all his or her assets during the procedure.
How Can I File under This Chapter?If you want to file for Chapter 7, be aware that there is plenty paperwork waiting for you. This is one of the main reasons why you should work with a lawyer who's specialized in bankruptcy.
One of the necessary steps in filing will be the means test - this evaluation will establish whether you are eligible for this chapter or not.
As part of the legal process, you will be required to attend a credit counseling session where you'll get guidance from a credit counselor. Afterward, you'll also participate in the creditor's meeting during which you'll be required to answer various questions related to the bankruptcy documentation you've submitted.
The final step of the procedure is the discharge. This happens if the creditors and the trustee agree that you should be discharged. After the discharge, the creditors will no longer be able to ask you to cover the debts incurred before filing. Nonetheless, you must check with your lawyer to see which debts can't be discharged. Moreover, keep in mind that co-debtors can still be required to repay creditors since Chapter 7 only grants personal discharge.
What Are the Advantages and Disadvantages of Chapter 7?Advantages
The biggest advantage of this option is that it keeps aggressive debt collectors at bay. If you file for bankruptcy under Chapter 7, the entire process will only take around five months from the moment you file until you get discharged. Most of your debts will be canceled under this bankruptcy procedure and the ones that remain, such as child support obligations, can be dealt with through the court system. There is no amount limit for your debts under Chapter 7.
This procedure will require you to give up your credit cards. It will also be extremely difficult to get a mortgage after you've filed under this chapter. You aren't allowed to file again under Chapter 7 sooner than six years since your first filing. This bankruptcy procedure doesn't cover all types of debts. Depending on your disposable income, the court might decide that you should rather be qualified for a Chapter 13 bankruptcy procedure even if you want to opt for Chapter 7.
Like any other bankruptcy procedure, Chapter 7 implies plenty documentation. Dealing with it might seem puzzling for someone who's not familiar with this legal process, so it's always better to get an experienced lawyer who can guide you and help you close the matter as soon as possible.