Chapter 7 is a form of bankruptcy that allows you to liquidate your unsecured debt. Common examples of unsecured debts are credit cards, medical bills, payday loans, signature loans, repossession deficiencies, and judgments. If you stop paying unsecured debt there is not any property that the creditor can take from you because there is no collateral.
It is very common for people to get in over their head with credit card debt while shifting balances from one card to another. You’ve probably experienced it yourself. The lure is enticing with zero percent interest and free money. You would file Chapter 7 after you have exhausted all of your non bankruptcy options. However, it is all too common for people to make minimum payments for years, and attempt to work with their creditors, just to find themselves worse off than when they started. Therefore, Chapter 7 Bankruptcy is a responsible way for you to reorganize your finances, liquidate your debt, and achieve the fresh start you deserve.
Benefits of Chapter 7 Bankruptcy
1) One advantage of filing Chapter 7 Bankruptcy provides you with a complete liquidation of your debt within four to six months of the filing of your case. There are no payments to your creditors.
2) Another advantage of Chapter 7 Bankruptcy is that creditors are required to comply with the bankruptcy code and must stop the following actions: harassing collection calls, garnishment of wages, pursuit of judgments through lawsuits, repossession and foreclosure.
3) A third advantage of Chapter 7 Bankruptcy, which is often overlooked, is that your credit could potentially be rebuilt faster after filing a Chapter 7 Bankruptcy than by not filing at all.
4) Lastly, many people are surprised that they are actually able to keep all of their property which can include your house, cars, retirement accounts, cash, and all household goods and furnishings.
Who Can File for Chapter 7 Bankruptcy?
Individual consumers are eligible to file a Chapter 7 Bankruptcy provided they meet the following criteria:
1. All Debtors filing Chapter 7 bankruptcy must pass a means test. The means test is a form that compares the Debtor’s income and expenses to the national IRS standards. This form is best completed by a skilled and qualified attorney. It is our experience that Debtors who previously qualified under the old bankruptcy laws, still qualify with the new bankruptcy laws. In fact, more than 96% of potential bankruptcy Debtors still qualify for Chapter 7 Bankruptcy.
2. In addition, Debtors are only eligible to file for Chapter 7 bankruptcy and receive a discharge of their debts eight years after a prior chapter 7 discharge.
How Does Chapter 7 Bankruptcy Affect my Credit?
Many Debtors are surprised when they learn it is possible to actually have a higher credit score within one year after completion of a Chapter 7 bankruptcy than if they had not filed. The truth is that bankruptcy is a negative reflection on your credit; however it is not the only factor creditors use when making a lending decision. Some of the positive effects that you will experience upon completion of your bankruptcy are as follows:
1. First, all of your eligible unsecured debt will be discharged. Therefore your debt to income ratio will be much improved.
2. Second, the negative payment history that is being used against you when creditors make lending decisions will be gone, and the line items on your credit report will show “Discharged in Bankruptcy.” Everyday that you put between the discharge of your case and the rest of your life, will continue to improve your credit score.
3. Third, continuing to make payments on the secured debts that you have elected to keep, such as a house or car, will establish a positive payment history. Most of our clients experience the ability to purchase a new home or car within one year of their bankruptcy discharge. It is also common to receive credit card offers right after you are discharged. Much is made about the fact that the bankruptcy discharge will appear on your credit for up to ten years after your bankruptcy, but the fact that bankruptcy appears on your credit does not mean that you will not experience positive lending opportunities.