Chapter 7 Bankruptcy can be a very useful legal solution for an individual if he is running low on cash and is unable to pay his debts. By declaring bankruptcy, he can get rid of the tension of debt and set up a new beginning. He can resolve most of his previous debts under the supervision of a federal court. You have to remember that this solution only resolves collateral-less unsecured debt including personal loans, medical bills, and credit card debt. During this process, you may have to give up your expensive assets like cars, properties or jewelry.
However, this process does not provide any protection against other forms of debts including court judgments fees, child support & alimony, back taxes, and student loans. It also paints a bad mark on the credit reports for a maximum period of 10 years. During this period, lenders can refuse you to give you any credit as you are considered as a bad debtor. However, the statistics suggest that most of the people improve their credit scores after filing a Chapter 7 Bankruptcy. Are you planning to declare bankruptcy? There is no shame in doing so when you are in a financial mess. What do you know about this? This article will talk in detail about bankruptcy.
How does anyone can qualify for Chapter 7 bankruptcy?
Even though it is not a very complicated process, there are some terms and conditions that need to be met before anyone can qualify for Chapter 7 bankruptcy. Thus, not anyone can wake up in the morning and just decide to declare bankruptcy to get rid of debts.
- The applicant must pass a test called by the reviewers. In this test, the reviewers evaluate the expenses, assets, and income of the applicant. This test is also known as the means test. You are expected to disclose every financial information to them. Violation of this can be a criminal mistake that can lead to imprisonment.
- If you had applied for bankruptcy in the last 8 years, you are not eligible for applying again. If you have submitted Chapter 13 bankruptcy in the last 6 years, you will not be eligible for filing Chapter 7 bankruptcy.
- This process also does not allow those applicants who have filed a bankruptcy petition and got dismissed by the court. The application will be rejected even if the past bankruptcy dismissal reason is voluntary, by creditors; unable to comply with court orders or failed to appear in the court.
When can you consider filing Chapter 7?
You might be wondering what is the best time for filing Chapter 7 Bankruptcy. Here are the top signs that you should be filing bankruptcy soon.
- Going through massive debt over and beyond your income
- Failed negotiation with the creditors for a better payment plan
- Struggling to manage debt when following the advice of a credit counselor.
- Consolidating multiple debts
You can utilize Chapter 7 bankruptcy as a “pause” button for some debts. After filing the petition, few creditors may temporarily stop collection actions against you or your property. Even after filing a Chapter 7 Bankruptcy, you may lose some assets. However, the classification of an asset may differ from state to state. According to the law of that state the house, stocks, and other investments can be considered as an exempt or non-exempt asset.
The process of filing Chapter 7 bankruptcy?
To successfully file Chapter 7 bankruptcy you need to follow several steps. On average, it would take six months to complete the filing process alone. Here are the steps to be followed.
Credit counseling: According to the law of most of the states, you must consult with a non-profit credit counseling agency 180 days before filing Chapter 7 bankruptcy. With the help of the agency, you must complete an insolvency analysis.
Qualified attorney: You need to file all the documents properly in the court and other institutions. For this, it is always better to hire a qualified attorney if you are not familiar with the law or financial processes. Missing information or improperly documented paperwork can lead to dismissal of your case. Stillwater OK attorney can help you will all the required procedures of Chapter 7 bankruptcy.
File paperwork: You should follow your attorney’s advice and collect & submit required documents to the court. After completing the filing procedure, creditors cannot sue you or harras you for payment. From that moment, an automatic stay goes into effect.
Take over of Trustee: After submitting the application of Chapter 7 bankruptcy, the court will appoint a bankruptcy trustee for managing the process.
Meeting of creditors: The trustee will issue a certain date and arrange a meeting between you and your creditors. You can ask your lawyer to be at this meeting for legal advice. At this meeting, the trustee and creditors can ask you questions about your finances and talk about future payment plan, if any.
Eligibility Determination: After reviewing your application and evaluating paperwork, the trustee will determine whether you are eligible for Chapter 7 or not.
Hand over of Non-exempt property: After the evaluation of the trustee, all non-exempted assets will go to creditors. As Non-exempt assets, it can include the equity of your house, jewelry or automobile which is beyond your state’s exemption limit.
Education course: As a final procedure, you need to get educated about finances. For this reason, you need to get enrolled in a qualified non-profit credit counseling agency and complete the course on financial education.
Discharge: On average, after three to six months after submitting the Chapter 7 bankruptcy application, the case will be marked as discharged. It means that eligible debts are now forgiven and the case will be closed shortly.
Disadvantages of Chapter 7 bankruptcy
Chapter 7 bankruptcy is not a complete financial solution to all your problems. There are many drawbacks to Chapter 7.
- Damaged credit score: Your credit score can get damage heavily by filing Chapter 7 bankruptcy. Financial institutions can refuse loans in the future, or add an extra surcharge on your loan.
- Liens against your property: By submitting Chapter 7 bankruptcy petition, you are giving the lenders a stake in your property. In the future, if you sell the property, the lenders will get a share in the money.
- Lose property: To pay certain debts, the court may order to sell the property.
Advantages of Chapter 7 bankruptcy
Chapter 7 bankruptcy has few advantages too. Declaring bankruptcy is a good choice if,
- You don’t have assets to lose.
- If the accumulated debt cross more than 40 % of your annual income.
- If you are induced with a high medical bill, personal loan, credit card bill, or payday loan.
- If it would take five years or more to pay off your accumulated loans.
In such cases, it is better to alleviate the burden of debt and start afresh.
Chapter 7 bankruptcy is not the end of life. It gives you an opportunity to restart your life with a new pace. It gives you a chance to learn from your mistakes. After your debts are cleared, you cannot afford to start back your previous style of living with debts again. Financial planning is required for rebuilding your life. Calculate all your expenses and try to cut wherever possible. Try to get an extra job or work overtime for extra income. Start saving money, no matter how small the amount might be and try to restore your credit score as soon as possible.