Thursday, April 28, 2011

What is Chapter 7 Bankruptcy?

Chapter 7 is the basic bankruptcy.  It is sometimes referred to as the "fresh start" bankruptcy or the "liquidation" bankruptcy.  Chapter 7 bankruptcy does not reorganize or restructure your debt, it eliminates your debt.     Depending on your situation, you may be able to keep homes or cars, but you will still have to pay any secured debts  associated with those assets.  Whether you can keep them or not will depend primarily on whether you are current on the payments, how much equity is in the asset, and what your exemption is.

In order to file a chapter 7 bankruptcy you must "qualify" on the Means Test.  Whether or not you will qualify depends on what your gross income has been for the six months before you file, and your household or family size.  If you do not qualify on the first test, you might qualify on the second test.  The second test is much more complicated and requires a review of your mortgage statements, secured car statements, whether you have back taxes, child support, spousal maintenance, child care, and the like.

Most chapter 7 cases last about four to six months and remain on your credit report for ten years after filing.  The goal is to get a discharge order, eliminating as much of your debt as the law allows.  Certain debts cannot be discharged.  These may include certain taxes, child support, certain marriage dissolution obligations, student loans and judgments resulting from drunk driving actions. 

If you qualify for chapter 7, it may be the best way to get a "fresh start", put most or all of your financial problems behind you, and start over.

1 comment:

  1. When your debts are unmanageable and when all other debt relief options have failed, a borrower can go for the option of Chapter 7 bankruptcy and go for a fresh start. This type of bankruptcy filing will help the borrower in getting most of his/her unsecured debts discharged excepting student loans, unpaid taxes, child support or alimony. If the borrower doesn't reaffirm the debts, then he/she won't remain personally liable for the debts. This will also help the borrower prevent any legal actions that the creditors would have otherwise taken against them.