Chapter 7 Bankruptcy
Understanding Chapter 7 Bankruptcy
If you feel totally trapped and are struggling to cope with your current financial situation, then filing for a Chapter 7 bankruptcy may be the best option for you. A Chapter 7 bankruptcy is not something to be undertaken lightly, as it will reflect on your credit score for up to ten years, but if your situation is totally bleak, it is worthy of consideration.
If you are in financial difficulty and have spoken to friends or family, they may have suggested filing for Chapter 7 bankruptcy. This is a commonly used term, but unfortunately, not many people understand the complexities of the process, or indeed the implications, both positive and negative for your financial future. Chapter 7 bankruptcy is a legal solution for people who are in severe financial situation. It allows them to discharge some but not all of their debts so that they can move forward with their lives.
There are certain debts that cannot be included in a Chapter 7 Bankruptcy; these include amongst others student loans, child support, and any liability which is owed to the Internal Revenue Service. Filing for Chapter 7 bankruptcy is not an insignificant decision, and anyone considering this option would be best advised to speak to the team at Bankruptcy Help so they can understand all of the complexities and future implications of the procedure.
Chapter 7 Bankruptcy gives anyone who qualifies the opportunity to reboot their financial life, but not without significant repercussions. Any assets currently owned, including your home may have to be sold as part of the process, and your credit score will be destroyed.
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What Does The Process of Filing For Chapter 7 Bankruptcy Involve?
Because it is such a significant step, anyone filing for Chapter 7 bankruptcy needs to adhere to certain conditions as part of the process. The purpose of these steps is to ensure that anyone going through the process receives sound advice, knowledge, and education, with the hope that they will never find themselves in such a situation again. Some of the steps anyone contemplating filing Chapter 7 should be prepared for include:
- Passing a “means” test - Not everyone who applies for Chapter 7 bankruptcy will be eligible, and one of the criteria which will determine whether Chapter 7 is even an option revolves around the level of your income.
- Taking Bankruptcy Counselling - Once you have started the process, you are required to complete bankruptcy counseling through an approved agency within 180 days.
- Filing A Petition At The Local Bankruptcy Court - This is an added expense that many people fail to take into consideration. There will be court fees, which could amount to several hundred dollars, and you will need to provide information about your income and expenses. Another requirement will be to provide a copy of your most recent tax returns.
- Attend A Meeting With Your Creditors - One of the most challenging parts of the process, this involves a meeting with your bankruptcy trustee, yourself and any creditors. You will then have to answer questions under oath about your financial situation, debt, and any properties that you own. You do not need to hire a bankruptcy trustee, one of those will be assigned to you.
- Complete An Approved Financial Management Course - Going through the bankruptcy process is not a pleasant experience, and certainly not one that anyone would choose voluntarily. Anyone filing for Chapter 7 bankruptcy will be required to complete a course and submit a form confirming this completion. The theory behind this part of the process is to assist and educate people in the hope that they will never need to file for bankruptcy again in the future.
- Receive Your Discharge - Once you have received your discharge, you are permanently protected from being chased or harassed by creditors. Please remember that this does not apply to all debt, and only includes debt that was discharged during the bankruptcy proceedings.
How Will A Chapter 7 Bankruptcy Affect Your Credit Score?
Although people who need to file for Chapter 7 bankruptcy may have little other choices, it is essential to understand that this is one of the most damaging procedures in regards to your current and future credit score.
The formula that is used to determine your credit score is not publicized by the various agencies, for obvious reasons, but it is widely acknowledged that your overall score will be significantly impacted once the bankruptcy is recorded on your file. Provided you follow sound money management protocols after the bankruptcy, your score will slowly start to increase again, but bear in mind that the bankruptcy will remain on your file, and be visible to potential lenders for ten years. Always ensure that you pay all of your bills on time, keep any credit card balances low, if you have any, and refrain from making a lot of credit applications in a short period of time.
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Consider All Of Your Options Carefully Before Filing For
A Chapter 7 Bankruptcy
Although it can and does solve many problems, filing for Chapter 7 is a life-changing decision, so it essential to weigh up all of the pros and cons before committing to it. You could be putting your home at risk, as well as any other assets you have accrued. But if you are struggling financially, emotionally, and mentally, and have exhausted all other options, then it might be the best answer to all of your problems. Everyone at Bankruptcy Help will do everything possible to assist and advise you in making the best decision for your situation. Our staff is not emotionally involved, and this ensures that they can help you to make logical decisions. Do not despair, there are always options available, and no situation is ever as bad as it may seem.
Frequently Asked Questions
There usually are court costs associated with filing for bankruptcy, and the costs will vary depending on the type of bankruptcy, and your current financial situation. At the time of writing, the cost of filing for a Chapter 7 Bankruptcy is $306 and for a Chapter 13 Bankruptcy $281. Some courts may also charge an additional administration fee. The good news is that in most cases, it is possible to pay the filing fee in installments. Some courts may also waive the filing fee for a Chapter 7 Bankruptcy if you can demonstrate that your income is below a certain level, and the court decides not to allow you to pay the filing fee in installments. Whether you use a company like Bankruptcy Help or an attorney, there will be additional fees payable, and it is standard practice to pay upfront for those services, particularly in the case of a Chapter 7 Bankruptcy.
It is a common misconception, that once someone is declared bankrupt that all of their debts are discharged, but this is not the case. The first thing to be aware of is that bankruptcy will not cover any debts which were incurred after you filed for bankruptcy, and which were not mentioned during the filing process. There are other debts that are not covered by bankruptcy. These include but are not limited to
• Student Loans
• Any Fines That Are Owed To A Government Unit Such As A City or State
• Any Outstanding Debts For Income or Property Taxes
• Child Support or Alimony Debts
• Any Fines You Have Received As Part of a Criminal Prosecution
Debts that you have obtained fraudulently may not be discharged. For example, if before filing for bankruptcy, and knowing that this was your intention, you decide to go on a spending spree with your credit card, spending money on a vacation, then this may be considered fraud if it can be proven that you had no intention to pay the debt.
In total, there are four different types of bankruptcy available to individuals, and each has specific conditions that must be met.
Chapter 7 - Perhaps the most well known and severe type of bankruptcy. This typically takes between two and three months and involves the sale of your residential property to pay off your debts.
Chapter 11 - A highly complicated process, predominantly targeted towards business debtors, but in some instances, it may be suitable for individuals with substantial debts and assets.
Chapter 12 - A type of bankruptcy very similar to Chapter 13, but exclusively available to family farmers and fishermen.
Chapter 13 - A court-supervised repayment plan which is designed to repay an agreed percentage of your total debt, over a period between 3 and 5 years.
Chapter 7 and Chapter 13 are the most frequently used options; Chapter 13 is preferable in most situations, as it enables the person filing for bankruptcy to retain their property, versus Chapter 7 where they must sell it to clear their debts.
The fact that you have filed for bankruptcy will be registered on your credit report. If you filed for a Chapter 7, then it will remain on the file for ten years, and for seven years if you filed for section 13. However, although obtaining credit will initially be more challenging, it will not prevent you from ever obtaining credit again in the future.
There are probably hundreds if not thousands of reasons why any honest hard-working individual could find themselves in financial difficulty. The bankruptcy laws were designed to provide people with a second chance, and a fresh start. On the other side of the equation, the laws were also intended to ensure that all creditors are treated equally. Once the bankruptcy process is complete, your creditors are prevented from trying to collect any outstanding debts, and as a consequence, you are then able to move forward with your life.
When a debt is said to be discharged, the debtor is no longer legally obligated to repay the debt, and the creditor is prohibited from trying to enforce payment. It is essential to understand that if someone else co-signed on an agreement, they would remain liable for the debt. Finally, if the debt was a secured loan, where you agreed to use property as collateral for the loan, then your creditor may still be entitled to repossess the property, should you not repay the loan. In situations like this, you are advised to speak to our friendly customer service team who will be able to provide you with the correct advice or provide you with the details of a bankruptcy lawyer.