What does Chapter 7 bankruptcy do?
Many debtors, who are considering filing Chapter 7 bankruptcy, ask the question, "What does Chapter 7 bankruptcy do?" Because Chapter 7 bankruptcy is such an important financial decision, this is a great question to ask before deciding to move ahead. So what will Chapter 7 bankruptcy do for you? For some debtors it will eliminate certain types of unsecured debts and allow them a fresh financial start.
Chapter 7 bankruptcy and the discharge of unsecured debts
Assuming you have debts which are legally dischargeable through Chapter 7 bankruptcy, after you file your Chapter 7 bankruptcy petition an automatic stay is initiated which will stop harassing creditor actions, bank account levies, repossessions, and most wage garnishments.
Next, a trustee will be assigned to your bankruptcy case and will gather your non-exempt assets and liquidate them. The proceeds from the liquidation will be used to repay your creditors. Creditors are paid in priority order according to current bankruptcy laws.
If there are no creditor objections and the court accepts the bankruptcy petition, your qualifying unsecured debts could be discharged within 4 to 6 months from the date the petition is submitted to the court.
What will Chapter 7 bankruptcy not do?
Above we discussed what Chapter 7 bankruptcy could do for you, but not all debtors will qualify for Chapter 7 bankruptcy. Additionally, even if you do qualify to file Chapter 7 bankruptcy you may not have all of your unsecured debts discharged.
Bankruptcy laws were updated in 2005, making it more difficult for those with higher incomes or higher disposable incomes to have their unsecured debts discharged. If you do not qualify for Chapter 7 bankruptcy you will have to file Chapter 13 bankruptcy and create a debt repayment plan to repay a portion of your debts.
Now, if you do qualify for Chapter 7 bankruptcy but your debts are non-dischargeable, Chapter 7 bankruptcy may also do nothing for you. For instance, debts which will not be discharged through Chapter 7 bankruptcy include most federal student loans, most recent tax debts, child support and spousal support payments and fines for criminal actions assessed by a criminal court for illegal acts such as DUI.
How do I know if Chapter 7 bankruptcy is right for me?
The best way to determine whether you should file Chapter 7 bankruptcy is to talk to a bankruptcy lawyer. As mentioned above, if your income is too high you will not be able to file Chapter 7 bankruptcy. Additionally, if your debts are not dischargeable, Chapter 7 will do nothing for you. Bankruptcy will also remain on your credit report for 7 to 10 years and can significantly lower your credit score.
For some debtors the negative ramifications of bankruptcy will be too high, and it may be better for them to seek a different solution to their financial crisis. For others, Chapter 7 bankruptcy can be the best way to eliminate unsecured debts which they may never be able to repay.
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Bankruptcy is not wrong for those who have made an honest effort to pay creditors.