Chapter 7 bankruptcy is the most common form in the United States. It can provide you the fastest relief from your debt, but at a price. Chapter 7 is liquidation bankruptcy which sometimes involves selling your assets to pay back creditors. Chapter 7 also remains on your credit report for up to 10 years and can have a negative impact on your score. However, this tends to be more severe at first and then lessens over time.
Who Is Eligible for Chapter 7?
Chapter 7 bankruptcy is available to both individuals and businesses. Individuals who file Chapter 7 must pass a means test in order to qualify. The means test takes your assets, expenses, and income into consideration. State laws set income thresholds to determine who qualifies for what kind of bankruptcy. If you are not eligible for Chapter 7, chances are that you may qualify for another type of bankruptcy, such as Chapter 13.
Are All Your Assets Liquidated?
Many people may have the mistaken idea that Chapter 7 means liquidating all your worldly possessions, but this is not true. Certain assets are exempt to allow you to make a fresh start following bankruptcy. For example, property that is necessary to your livelihood is exempt. It would be counterproductive to take away your home and leave you with no place to live, so your primary residence is usually exempt, as well as your car. However, if you also own a vacation home, that will probably be vulnerable to liquidation, along with any secondary vehicles you own.
What If You Do Not Own Enough Property To Cover Your Debts?
Once any non-exempt assets are liquidated and the proceeds from the sale distributed to creditors who file a claim, your debts are discharged. Any balances remaining after creditors receive their proceeds from the liquidation are forgiven, and you are no longer responsible for them. It is actually rare for a person’s non-exempt assets to cover all debts. In fact, many people who file Chapter 7 end up losing no assets at all because exemptions cover all of their property.
How Do You File Chapter 7?
Before you can file, you must complete bankruptcy counseling. You will attend a meeting of creditors after filing your petition with bankruptcy court. Following liquidation of your non-exempt assets, you will receive your discharge.
It is not required that you hire a chapter 7 bankruptcy lawyer when you file for Chapter 7 bankruptcy. However, it could help you avoid costly mistakes. Attorneys would be happy to help guide you through the process when you contact a law office.