What You Need To Know Before Filing For Chapter 7
So, what exactly is Chapter 7 or sometimes known or referred to as liquidation bankruptcy? Well, this type of bankruptcy discharges almost all of your personal unsecured debt, which can include debt from Credit cards, medical bills, and even personal loans. This article will go over what you need to know before filing for chapter 7.
This form of bankruptcy is one of the quickest and most simple types of bankruptcy, which adds up to making sense why it is also one of the most common types of bankruptcy in the United States. In fact, according to the American Bankruptcy Institute, 63 percent of all of the bankruptcies filed in 2020 were Chapter 7 files. But, perhaps a more telling stat when it comes to chapter 7 bankruptcies is that about 94 percent of all chapter 7 filings have their debts discharged (also known as debts forgiven.) When it comes to filing a chapter 7 bankruptcy claim, you will need to pass a means test in order to determine if you can classify. The means test looks over all of your financial records such as income, expenses, and different types of debt (secured and unsecured). They use this information to determine where your level of disposable income falls among the median of income within your state. That means that the required mean test varies among all of the states. One of the outcomes of a chapter 7 bankruptcy could involve you having to sell off any assets that are deemed non-exempt. There are some online resources that claim the vast majority of chapter 7 filing cases are no-asset cases resulting in there not being enough equity within your property to pay off creditors. One of the other benefits of a chapter 7 bankruptcy filing is the fact that it can usually be completed rather quickly, with most filings wrapping up within four to six months.
What Debts Can And Cannot Be Discharged During A Chapter 7 Bankruptcy
While filing for Chapter 7 bankruptcy can help you dismiss the majority of your debts, there are some types of debt that cannot be discharged through chapter 7. Some of these non-dischargeable debts include the following types of claims: student loans, child support payments, alimony payments, back taxes, court fees and penalties, homeowners association fees, any type of personal injury debt that is due to an accident while intoxicated, as well as any unsecured debt that you left off of your filings. Some of the debt that you are able to have discharged during a chapter 7 bankruptcy filing include credit card debt, medical bills, any personal loans, mortgage, and automobile loans, as well as any unsecured debt.
When Should You File For Chapter 7 Bankruptcy?
There are some telltale signs that you should begin thinking about filing for a chapter 7 bankruptcy. However, there are five strong signals that should really point you towards considering chapter 7 as the right way to find a solution for your debt issues. These include:
Income To Debt: if your total debt is more than half of your yearly income.
Five Years: if it will take you more than five years to pay off your debt even while using some extreme measures.
Stress: if your debt is causing stress in important areas of your life such as sleep, relationships, or mental health.
Disposable Income: if you are strapped for disposable income.
Median Income: if your monthly income falls below the median income within your current state.
How To File For A Chapter 7 Bankruptcy Claim
One of the first things you need to make sure you are doing before filing for a chapter 7 bankruptcy is to make sure that you have found an experienced bankruptcy attorney to help guide you through the process.
Once you file a petition for a chapter 7 bankruptcy, it will initiate what is known as an automatic stay, which simply means that any creditor can no longer pursue any lawsuits, garnish wages, or even contact you about your current debts.
Preparing For Chapter 7 Bankruptcy
When you have decided that it is time for you to file for a chapter 7 bankruptcy, there are a few things you will want to do leading up to the filing in order to not undermine your own efforts.
Do Not Pay Creditors: while this may sound counterintuitive, you do not want to make any payments other than your routine payments. This is because large payments that can be seen as unusual can be classified as preferential transfers.
Don’t Collect New Debt: creditors could claim that you took on new debt with no intentions of ever paying it back. This debt can legally be classified as fraud, and will not be forgiven during your chapter 7 filing.
Be Truthful: always give full and complete information when filing for bankruptcy. Be honest when disclosing all debt, assets, and accounts.
Contact the bankruptcy experts at Bruner Wright P.A. today for questions, consultations, or to get started on bankruptcy.