Many solutions exist to eliminate debts. Among such solutions is personal bankruptcy. There are six types of bankruptcy, and one is chapter 7 bankruptcy. People use this strategy if they are not able to solve their debts through other debt consolidation strategies. Unlike chapter 13 bankruptcy, it does not have a repayment plan.
How will an individual pay his or her debts if there is no payment plan? Chapter 7 works by selling the assets which are not protected by the law. These assets are sold to pay the debts. It may not be the best solution, but it is one way to pay all your debts.
Who Qualifies for Chapter 7?
Unlike chapter 13, to file for chapter 7 bankruptcy, the monthly income of the debtor must be less than the state median income. The debtor can also give a “means test.” It will examine the entire financial records of the debtor such as assets, expenses, secured debts (car loans, mortgages, rents, etc.) and unsecured debts (personal loans, medical bills, bank checks, credit card bills, etc.).
The process starts when the debtor files a petition (application via legal procedure) in the local bankruptcy court. The debtor lists all the financial statements. To make sure that he qualifies, he has to show:
The monthly or annual income and expense reports
All the assets
All the debts
Leases or contracts
A statement of financial affairs
Just like chapter 13, chapter 7 requires debtors to undergo credit counseling. The debtor will have to pay the fee for filing the case. He also has to pay the court fee.
There are many things which a person can do before chapter 7 bankruptcy, like finding some consolidate debt online services and programs, but there are a few things that he cannot keep from getting sold. This includes:
Other valuable collections
On the other hand, he might get to keep the home, car and any other thing that they need to work. Taking help from a local attorney is important. Only an experienced lawyer can help you file the case and get away with most of your possessions.
Life After Chapter 7 Bankruptcy
After chapter 7 bankruptcy, the individual is left with no debt to pay. He has a clean slate and can start fresh. Another benefit is that the court orders the discharge, which can take 60 to 90 days.
One of the biggest disadvantages is that individuals lose their assets. Another disadvantage is the bad credit score. Chapter 7 damages your credit reports which is, of course, not good for your future. It will be difficult for debtors to obtain any credit for the next ten years or more.
Chapter 7 is a healthy option, but it has more disadvantages than advantages. You should only go for this personal bankruptcy option if you do not have any other way. Keep it as a last resort.
Posted in: debt consolidation