4 Things To Know About Chapter 7 Bankruptcy
Posted on: 9 August 2021
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Are you feeling confused at the different forms of bankruptcy, and not sure what makes Chapter 7 bankruptcy so different? Here are a few key things you should know about this form of bankruptcy if you are considering filing.
Chapter 7 Bankruptcy Discharges Unsecured Debt
There are certain situations that can trigger the need to use Chapter 7 bankruptcy for the quickest relief possible. It is mainly to discharge unsecured debts that do not have collateral or property attached to the debt. This includes credit card bills or medical bills, rather than a mortgage or auto loan. Your unsecured debts will be eliminated completely with no obligation to pay them anymore. Most of the assets attached to your secured loans will be liquidated to pay for your debts. A few items may be exempt from liquidation, but you must continue making the monthly payments on them.
Chapter 7 Bankruptcy Doesn't Have A Minimum Debt Requirement
One thing to be aware of when using Chapter 7 bankruptcy is that there is no minimum amount of debt that you must have. While there are legal costs involved to file for bankruptcy that may make a small amount of debt not worth it, you can still move forward with Chapter 7 bankruptcy if you choose to do so. Your lawyer will likely advise you if debt settlement will be the better option if your amount of debt is small enough where bankruptcy is not worth it.
Chapter 7 Bankruptcy Uses Means-Testing
You must qualify for Chapter 7 bankruptcy before you can file, which is done through means-testing. There are different rules for means-testing in each state, and it is based on how much you owe and how many people are in your household. Your household income is compared to similar households in your state, and if you make below the threshold that qualifies for Chapter 7 bankruptcy, then you can file. If you make slightly more than the threshold, there are ways to take deductions that will get your income below where it needs to be. These means-testing amounts change all the time, so it's worth looking into Chapter 7 bankruptcy if you did not qualify in the past.
Chapter 7 Bankruptcy Will Stay on Your Credit Report A Long Time
Since Chapter 7 bankruptcy allows you to completely discharge unsecured debts, know that it will have a lasting impact on your credit report. Creditors will be able to see your bankruptcy filing for 10 years, which will impact you any time you want to take out a loan, open a line of credit, or borrow money in the future. Some lenders will want a specific amount of time to pass after filing for bankruptcy, or you can end up paying a higher interest rate because you are viewed as a greater risk to the lender.
Talk to a Chapter 7 bankruptcy lawyer for more information.