Filing for Chapter 7
For some consumers facing overwhelming debt, filing for Chapter 7 bankruptcy may be one of the few ways to get a "fresh start" with their debt, essentially erasing the obligation to repay many types of debt a filer may owe. In this section, you can find information on who qualifies for Chapter 7 bankruptcy, how debt is addressed in a Chapter 7 filing, and an overview of the rules covering this type of bankruptcy. You can also find articles explaining the difference between Chapter 13 and Chapter 7 bankruptcies, helpful checklists for Chapter 7 filers, and more.
Who Can File for Chapter 7 Bankruptcy?
Bankruptcy judges once had substantial discretion in determining whether or not to grant Chapter 7 bankruptcy to applicants, but since 2005 regulations have been introduced that created more specific criteria for granting or denying Chapter 7 relief to debtors.
Under these new regulations the court may convert an ineligible debtor's Chapter 7 action into a Chapter 13 bankruptcy, except where a disabled veteran seeks to eliminate debt incurred while on active military duty or where filers with debt that came primarily from operating a business, though all other filers in this circumstance must also qualify for Chapter 7 relief. The following circumstances could render a debtor ineligible for Chapter 7 bankruptcy:
- The Debtor's Income is too High
- The Filer can Repay Some Debt
- Debt was Previously Discharged in Bankruptcy
- A Previous Bankruptcy Case was Dismissed Within the Previous 180 Days
- The Debtor Failed to Meet the Credit Counseling Requirement
- The Debtor Defrauded Creditors
Pros and Cons of Declaring Bankruptcy under Chapter 7
It can be a very difficult decision to file for bankruptcy. Since the impacts of a bankruptcy can last for years it is worth considering the pros and cons of Chapter 7 bankruptcy carefully before deciding to file. Here are some important considerations relating to this form of debt relief:
- Chapter 7 bankruptcies are relatively quick to complete.
- State exemptions may help you keep some assets as well as your salary, wages, and after-acquired property.
- You may become eligible for new lines of credit, albeit at higher rates.
- You can get started rebuilding your credit.
- Chapter 7 bankruptcy can forgive many kinds of debts.
- Bankruptcy will ruin your credit for many years.
- You will lose your non-exempt property.
- You will lose all your credit cards.
- You will not be able to get a mortgage.
- You may be prevented from filing for bankruptcy again later.
- Bankruptcy will not relieve alimony, child support, or student loan debt.
- You will have to explain your finances to a judge or trustee.
- You may still be obligated to pay some debts even after bankruptcy proceedings are completed.
Bankruptcy Exemptions: Chapter 7
Although Chapter 7 bankruptcy requires the liquidation of many assets there are certain kinds of property that may be protected from loss. The foregoing are the most common exemptions, though it should be noted that many are qualified or limited, follow the links to our article on the issue for more detail:
- Homestead Exemptions
- Car or Auto Exemptions
- Personal Property Exemptions
- "Wildcard" Exemptions