Sometimes life gets hard. We lose our financial cushion due to accumulated debts and seek a fresh financial beginning by filing for bankruptcy. Chapter 7 bankruptcy rates are one of the best debt relief options for those living in the United States among the many bankruptcy options. Many debtors have greatly benefited from filing for Chapter 7 bankruptcy.
What is Chapter 7 Bankruptcy?
There is a time when your debt is too large to settle with the assets you have, or it would take years and years to pay off even with the best and strongest debt-payment options from your financial advisor. If you find yourself in such a predicament, filing for Chapter 7 bankruptcy could be your best option.
The United States Chapter 7 of the Bankruptcy Code provides for "liquidation," where one, the debtor, gets relieved of everything they owe regardless of whether they're solvent or insolvent. During liquidation, a Chapter 7 trustee of the court sells the debtor's non-exempt property and extends the proceeds to creditors as some of the debt payment defined in the Bankruptcy Code.
Unlike a Chapter 13 bankruptcy, you're under no obligation to file a repayment plan in Chapter 7 bankruptcy. But part of your property may be subject to liens and mortgages that pledge the property to other creditors. Additionally, as the debtor, the Bankruptcy Code allows you to keep certain "exempt property" –these aren't subject to liquidation, and the trustee can't touch them.
Who is Eligible for Chapter 7 Bankruptcy?
Any debtor qualifies for Chapter 7 bankruptcy: individuals, corporations, limited liability companies (LLCs), partnerships, or any other business entities provided they meet the following requirements:
- The debtor must pass the 2005 bankruptcy means test of the Bankruptcy Code, which was instituted to prevent people and entities from abusing the bankruptcy process. The test evaluates your income, assets, expenditure, family size, and how they compare with similar households or companies within your area. It helps determine your ability to pay what you owe.
- If the income is below the median for a similar household, you may qualify for Chapter 7 bankruptcy. If the income is above the median, you're required to provide additional forms showing your expenses for further evaluation and eligibility.
- You don't qualify if you've filed for Chapter 7 bankruptcy in the past 8 years or Chapter 13 bankruptcy in the last 6.
What Are the Advantages of Filing for Chapter 7 Bankruptcy?
Some of the advantages of filing for Chapter 7 bankruptcy include:
- Enjoying immediate debt relief, allowing you to start afresh and get your finances in order again.
- Permanent debt relief. You don't have to worry about credit card debt, medical bills, mortgages, and personal debts.
- It's easy to file for Chapter 7 bankruptcy if you've never filed for one and meet all the requirements stated above.
- Better credit and banking access since all your negative credit reports go away.
- You can "exempt" "and keep all your assets. Actually, more than 95% of Chapter & bankruptcies keep all their belongings.
What Are the Cons of Filing for Chapter 7 Bankruptcy?
- Debtors making more than the median income cannot qualify for Chapter 7 bankruptcy. If you earn a lot and have workable disposable income, you can file for Chapter 13 bankruptcy.
- Not every property is exempt. The case or bankruptcy trustee will sell the non-exempt property to repay creditors part of your debt.
- Your good credit score may be hurt, albeit temporarily.
- You still have to take care of unsecured debts like child support, student loans, alimony, and tax debts.
- Chapter 7 bankruptcy doesn't cover others' debts. For instance, if a spouse was a co-signer on your mortgage, they'll still be liable for the debt even if you file for Chapter 7 bankruptcy.
The Bottom Line
After filing and qualifying for Chapter 7 bankruptcy, you're discharged from personal liability for most of your debt. Creditors have no right to collect from you or take legal action against you. It's advisable to get competent attorneys to help you with filing to make the right exceptions before a discharge. You are likely to receive your discharge in 60-90 days unless someone like a creditor objects.