Chapter 7 bankruptcy is a legal proceeding designed to help individuals or businesses that are struggling with unmanageable debt. Often referred to as “liquidation bankruptcy,” Chapter 7 can offer relief by discharging most of your unsecured debts, such as credit card balances and medical bills. Here, we will explore the ins and outs of Chapter 7 bankruptcy, highlighting important aspects that you need to know.
Income Qualifications
Before you can file for Chapter 7 bankruptcy, you must pass the means test, which determines whether your income is low enough to qualify. This test is designed to prevent individuals with higher incomes from opting for Chapter 7 instead of repaying their debts under a Chapter 13 repayment plan. If you pass the means test, you can begin the filing process, which typically requires the payment of a court fee. According to Experian, you’ll pay about $320 in court fees to file a Chapter 7 petition.
Automatic Stay
Once you file your Chapter 7 petition, an automatic stay goes into effect, halting most collection actions against you. This means creditors must temporarily cease collection activity, including lawsuits, wage garnishments, and persistent phone calls. The court will appoint a trustee who will review your finances and oversee the liquidation of your non-exempt assets. These assets are sold off to pay back creditors as much as possible. It’s essential to consult with a Chapter 7 bankruptcy lawyer to understand which assets may be exempt and protected under state or federal law.
Continued Obligations
It’s important to note that not all debts can be discharged under Chapter 7 bankruptcy. Certain obligations, such as alimony, child support, and most student loans, remain your responsibility even after bankruptcy proceedings are complete. Additionally, Chapter 7 bankruptcy can stay on your credit report for up to 10 years, potentially affecting your ability to obtain credit in the future. However, many find relief in the fresh financial start that Chapter 7 can provide, outweighing the long-term impact on their credit history. Work with a Chapter 7 bankruptcy lawyer to be sure you understand the specifics of your unique situation.
Chapter 7 bankruptcy can offer significant relief to those overwhelmed by debt, providing a path to a financial reboot. It is, however, a decision that should be made after careful consideration of its implications, such as the potential loss of assets and long-term impacts on credit. Consulting with a qualified Chapter 7 bankruptcy lawyer can help navigate this complex process, ensuring that you fully understand your rights and options. For help navigating your bankruptcy situation, contact our team at The Bankruptcy Law Offices of James Schwitalla, P.A. today.