There are two most common forms; Chapter 7 and Chapter 13. Each has its own set of advantages and disadvantages. In this article you'll learn what Chapter 7 bankruptcy is and find out if filing for one is your best course of action.
What Chapter 7 of the U.S. Bankruptcy Code Covers
Chapter 7 or "straight bankruptcy" is generally what people mean when they think about bankruptcy. Put simply, Chapter 7 reduces your debt if you, the debtor, surrender a part of your property. During the proceedings, all assets not protected against creditors will be liquidated. There's no repayment plan involved since you'll no longer be responsible for any remaining debt not covered by the sale your assets. Your debt is "wiped clean," which means you'll have to start your life from scratch after losing possessions.
What happens in practice, though, is far different from what the law intends. About 96 percent of personal bankruptcies are no-asset cases. No property is liquidated is taken away from a debtor either because it's exempted or low-value.
Who Can Qualify for a Chapter 7
Debtors who file for this type of bankruptcy should first consult with a Chapter 7 bankruptcy lawyer. That's because you have prove you're earning more than the state-specific median income in order to qualify. A lot of debtors have passed the new Means Test. The hardest part, however, is in gathering the information required to qualify. Working with a Chapter 7 lawyer can definitely speed up the process.
Those deep in debt may want to try qualifying. An article at CNN Money describes this form of personal bankruptcy as "the best option for consumers saddled with insurmountable debt."
What to Watch Out for When Filing
Filing for bankruptcy is one of the biggest decisions that can either revive or ruin your finances. Credit counseling agencies and lawyers that can financially benefit from your position may slow down the process or may put you at a disadvantage. Talking to someone who has gone through this can give you a glimpse of the process.
Learn from their experience and talk it through with your partner and anyone who may be affected by the bankruptcy filing.
As always, consulting with a Chapter 7 bankruptcy lawyer can save you from unexpected legal consequences. A good lawyer can even point you to alternative solutions or actions to take before filing for a bankruptcy.
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