Chapter 7 Bankruptcy
If you’re considering filing for Chapter 7, also known as “straight” or “liquidation” bankruptcy, know that you are not alone. Between 2005 and 2017, 8.7 million American consumers filed a petition in federal court for chapter 7. It could be an emergency expense or job loss that puts you behind and before you know it, you’re dealing with arrears and late fees.
The good news is that filing for Chapter 7 bankruptcy is relatively straightforward. To help you decide whether filing for Chapter 7 is the right decision, here are answers to the most frequently asked questions on the topic.
How do I know if I qualify?
Chapter 7 is the most common type of bankruptcy proceedings. However, there are certain guidelines you must meet to be eligible:
- You must not have filed for Chapter 7 in the last 6 years
- You must not have filed for Chapter 13 in the last 8 years
- Your monthly income needs to meet your state’s requirements
If your income is higher than the state average, you’ll be asked to take a “means” test. But even if you make more than the median income, you may still qualify. You’re allowed to deduct certain expenses like healthcare and childcare costs, and income tax.
How long does the process take?
Typically, the whole Chapter 7 process takes 4-to-6 months. Some cases can take longer if additional documents are requested or if property has to be sold to repay creditors. Before you can start, you need to undergo a credit counseling session with an approved agency within the 6 months prior to filing. Then at the end of the proceedings, you’ll need to complete a debtor education course as well.
What are my odds of success?
If the statistics have remained the same in the past few years, your chances at having your debts discharged are really good. According to the American Bankruptcy Institute, 95.5% of the 500,000 Chapter 7 petitions filed in 2016 were successful.
What happens to my property?
When you file a petition for chapter 7, certain property is exempt. For example, you’re allowed to keep your home, car, and any tools of your trade needed to make a living. Retirement savings, veteran’s, disability and Social Security benefits are off limits too. Non-exempt items such as a second home or car or collectibles, art, and jewelry can be sold by the court-appointed trustee to pay off your debts.
What happens to my debt after Chapter 7?
The good news is you will be able to get most of your unsecured debts such as personal loans, medical and utility bills, and credit card charges discharged. Secured debts such as mortgage and car payments can also be discharged but if there’s a lien attached the creditor will probably repossess the property if the debt remains unpaid.
Certain other debts cannot be discharged. If you owe child support, student loans, or tax debt, it will still be there to deal with after the proceedings. In addition, any “post-petition” debt (amounts you run up after you’ve filed for bankruptcy) will still need to be paid after your other debts have been discharged.
Do I need an attorney?
If your circumstances are straightforward, you don’t have to use an attorney for Chapter 7. But if your situation is more complex, you may want to have a bankruptcy lawyer to guide you through the process.
You could file the petition on your own if:
- Your household income is below the state average
- There are no fraud charges against you
- You’re willing to put in the time to research
- You have few or no assets
If you hire a bankruptcy lawyer, it’s one less thing to worry about during an already stressful time. If you own property and other assets, an experienced attorney could help you decide which items should be exempted. You’ll be able to relax knowing that the correct paperwork has been filed. All that will be left for you to do is to draw up a budget. Then when your Chapter 7 debts are finally discharged, you can make a fresh start and look forward to a healthy financial future!