Trying to figure out Chapter 7 personal bankruptcy basics can be a tall task – especially when you’re dealing with your own personal finances. When is bankruptcy the best solution? How will it impact your finances moving forward?
It’s enough to make your head spin.
Also known as a straight or liquidation bankruptcy, a Chapter 7 personal bankruptcy is a type of bankruptcy that clears away various forms of unsecured debt. But filing it may be your last resort to help you settle your debt and finances, especially if you are fairly far behind on paying your bills and are financially unable to afford your living expenses and monthly expenses.
But keep this in mind: You might need to give up some belongings, and filing a bankruptcy could have a long-term impact on your credit.
When you file for Chapter 7 personal bankruptcy, the bankruptcy court places an automatic temporary stay on your current debts. This automatic temporary stay keeps creditors from repossessing property, foreclosing on your home, garnishing your wages, collecting payments, turning off your utilities, or evicting you. The court will then legally possess your property and choose a bankruptcy trustee to oversee your bankruptcy case.
The role of the bankruptcy trustee is to review your assets and finances and oversee your Chapter 7 bankruptcy case. The trustee will sell specific property that the bankruptcy won’t let you keep, known as nonexempt property, and use the proceeds of the sale to pay back your creditors. They will also arrange and run a meeting between you and your creditors, known as a creditor meeting. During this meeting, you go to the courthouse and answer questions about your bankruptcy filing.
The list of exempt property that you don’t need to sell or turn over to creditors, as well as the total money value that you can exempt from your bankruptcy case, can vary depending on the state. Some states allow you to choose between the federal exemptions and their exemption list. However, most Chapter 7 bankruptcy cases are “no asset” cases, which means that all of your property is exempt or there is a valid lien against your property.
At the end of the Chapter 7 bankruptcy process, about four to six months after your initial filing, the bankruptcy court will discharge your remaining debts, which means that you no longer need to pay them back. That being said, there are some debts that are not dischargeable through bankruptcy, including alimony, court fees, child support, most student loans, and some tax debts.
Chapter 7 and Chapter 13 bankruptcy are the two most common types of bankruptcy that impact customers. Either of these kinds of bankruptcy can help when you are unable to pay your bills, but there are several huge differences between Chapter 7 and Chapter 13 bankruptcy.
A court will approve the Chapter 13 repayment plan. This bankruptcy plan typically lasts about three to five years. Your trustee will collect all of your payments and send them to your creditors. After you finish the repayment plan, the rest of the unsecured debts are discharged.
Want to know the Chapter 7 personal bankruptcy basics about who qualifies for the bankruptcy? It’s important to keep in mind that there are a few requirements you have to meet in order to qualify for a Chapter 7 bankruptcy:
A Chapter 7 bankruptcy will typically discharge your unsecured debts, including unsecured personal loans, medical bills, and credit card debt. The bankruptcy court will discharge these debts at the end of the bankruptcy process, typically about four to six months after you begin.
There are some kinds of unsecured debts that aren’t discharged through a Chapter 7 bankruptcy, including alimony, student loans, child support, some tax debts, court fees and penalties, homeowners association fees, unsecured debts that you intentionally left off your filing, and personal injury debts you owe because of an accident while you were intoxicated. Your credit can also keep specific debts from being discharged.
Also, a Chapter 7 personal bankruptcy can discharge the debt that you owe on secured loans. Secured loans are loans that are backed by collateral, including your home for a mortgage. But if the debt is discharged, the creditor has the right to repossess or foreclose on your property.
Have more questions? Contact the Van Horn Law Group to learn more about the Chapter 7 personal bankruptcy basics.
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