Four Things You Should Understand About A Chapter 7 Bankruptcy

Law Blog

You may have gotten to the point where your debts have overwhelmed you, and you are thinking about filing for bankruptcy because you want a fresh start. This type of bankruptcy is referred to as Chapter 7. However, there are a few things you need to know about this type of bankruptcy.

You must qualify for Chapter 7 bankruptcy

The idea of just walking away from your debts and starting fresh has great appeal. Both creditors and lawmakers alike understand this, so the laws have tightened up to prevent people from accumulating debt without the intent of paying it, and then filing for bankruptcy. For this reason, you must qualify for Chapter 7 bankruptcy. There are rules regarding your income, as well as other criteria. An attorney can help you understand whether you qualify.

Not every debt is covered under this bankruptcy

Depending upon the type of debt you have, you may not have the fresh start you're looking for. This is because many of the overwhelming debts you have are excluded. Examples are back taxes and college loans. Both of these debts you will still have after your bankruptcy is discharged. In addition, overdue child support is not covered. Neither is a mortgage that you've fallen behind on. For the most part, a Chapter 7 bankruptcy is for unsecured debt, which is usually accumulated through credit cards and unsecured loans.

You may have to sell some assets

If you have anything of monetary value, a bankruptcy judge may require you to sell it. The proceeds of the sale will be used to pay down some of the debt that you have. Even when you're going through bankruptcy, creditors have the right to get some of their money back, when it's possible. There are many rules regarding which assets you have to sell. For example, you're allowed to keep a car that's valued below a certain amount, and certain home items and furnishings as well. An attorney can explain what is exempt under this bankruptcy filing.

Don't attempt to file yourself

There are forms available at legal stores, and books that you can purchase to learn how to file for bankruptcy on your own, but this is a bad idea. Creditors can challenge your bankruptcy in court, and you can also make mistakes that can nullify your bankruptcy.

Although you should not be discouraged from filing for bankruptcy, there are important issues you need to be aware of. It may not be as easy as you think to declare bankruptcy. You must first qualify under federal bankruptcy laws. Furthermore, it is important to understand that not every debt is covered under bankruptcy, and you may have to sell some of your assets during the process. It is best to consult with an attorney to decide whether this is a good choice for your financial situation.

For more information, contact a Chapter 7 bankruptcy attorney.


2 May 2023