Chapter 7 Bankruptcy – How it Works
For most people, the word bankruptcy sends shivers downwards their backward. Most think that it is a fate worse than death to declare bankruptcy. However, for those whose debt has gotten to a point of being out of control, bankruptcy may be the cure. Bankruptcy laws were set up for the average American citizen. It’s a way for those who are drowning in debt to find a way out and start again. Let’s stare at the basics of Chapter 7 bankruptcy, the more common of the bankruptcy laws.
The Basics of Chapter 7 Bankruptcy: In a Chapter 7 bankruptcy, the courts assign a trustee to assess your assets. They then proceed to collect those said assets and begin liquidating them. In bankruptcy, they reduce them to cash and then they will distribute that to your creditors. Many times, there is nothing to liquidate after you have received your bankruptcy-protected exemptions from the assets. You are then relieved from paying any remaining balances owned to your creditors.
How to Start a Chapter 7 Bankruptcy: Once you have made the decision to file for Chapter 7 bankruptcy you should stop paying your bills, at least the ones that would be erasing by it. That money should be set aside for your bankruptcy attorney’s fees. Don’t go on a spending spree just because you are filing bankruptcy. This could be seen as fraud by the court and you could be cause for not qualified for Chapter 7. Your best bet is to try and not make any unusual purchases a couple of months prior to filing.
How Do You Qualify for Chapter 7 Bankruptcy: Your bankruptcy attorney will assist you determining whether you qualify for Chapter 7 bankruptcy. Reasons that would not allow you to qualify would be that you earn too much money or your home has too much equity value. If that is the case, you may want to file for Chapter 13 bankruptcy. In Chapter 13, you would be set up by the court on a repayment plan to pay off your debts. You would have anywhere between three to five years to pay them off without any additional interest or penalties. Your debts under Chapter 13 are not erased, as they would be under Chapter 7.
The Exceptions of Chapter 7 Bankruptcy: There are exceptions to what is wiped out from Chapter 7 bankruptcy. You will still be liable for any taxes you owe, student loans, child support payments, or alimony. In addition, if you plan to keep your house or your car then you will be responsible for those loans as well. However, you will be relieved of all debt responsibility on all unsecured debt. This includes personal loans, credit cards, and even medical bills.
401k and Pensions The bankruptcy court will not liquidate some protected exemptions. They will not touch your 401k savings and your pension. Your personal property including jewelry and cash are protected from bankruptcy as well. Of course how much of it you can keep will depend on the state you file your bankruptcy in. However, the idea of Chapter 7 bankruptcy is to give you a new start on life.
Starting Life Again After Chapter 7 Bankruptcy: So what is the down side to filing for bankruptcy? Believe it or not, the only real consequence to filing Chapter 7 other than the blow to your self esteem, is that your credit score will stopping up down at the bottom of the heap. However, your credit score was probably way down at the bottom long before you filed.
Bankruptcy isn’t for everyone, but it can be for those who find themselves drowning in their own debt. Chapter 7 can be the life preserver that saves your financial future.
Written by MikeBurnside
Creator and writer for Unravelingmysteries.com a lifestyles website.