What is Chapter 7 Bankruptcy? Is it right for me?
Chapter 7 Bankruptcy allows you to get a fresh start free from most debt speedily and efficiently—often lasting only 90 days. The internet is awash with stories about how this chapter works, but most of my clients lose no personal property because of the exemptions that protect them. The bankruptcy code has evolved to a point where most clients can continue paying for things like cars and homes—the things we know are necessities to you.
Do I qualify for Chapter 7 bankruptcy?
The bankruptcy code is drafted to prevent those with significant disposable income from filing Chapter 7It’s designed to offer a clean slate only to those who cannot afford to pay back their debts.
Suppose your income is higher than the median. In that case, the court will consider whether you have enough disposable income to cover at least a portion of your unsecured debts, such as consumer credit cards or medical debt.
If your disposable income is too high, you will fail the “means tests” and will not be able to discharge your obligations under Chapter 7. However, you can still file for bankruptcy under Chapter 13, which will also lead you down the path of financial health.
What can I discharge in a Chapter 7 bankruptcy?
Chapter 7 bankruptcy protection allows debtors to be free of most of their debts and start over. Specifically, you can expect your unsecured debt to become discharged. Unsecured debt is the debt that is not “attached” to any of your tangible assets.
Debts routinely discharged in Chapter 7 bankruptcy include credit card debt, medical bills, payday loans, garnishments, car repossession balances, personal loans, and many other debts. These debts are eliminated in Chapter 7.
Debts that are attached to a tangible asset are generally dischargeable, though you would need to surrender the property. SO if you file a bankruptcy and eliminate a car loan, you would be expected to surrender the car back to the bank (i.e., no one gets a free car just because they file bankruptcy). The rationale behind this policy in the bankruptcy code is that it would be unfair for debtors to keep assets but have the debt attached to those assets wiped clean. Although not all debts are eliminated (most notably student loans, marital support obligations, criminal court fines and fees, and certain taxes), most debts are eliminated in Chapter 7 bankruptcy.
What happens to my credit score after a Chapter 7 bankruptcy?
There will be a notation on your credit report that you filed for bankruptcy—this usually lasts up to ten years. It’s daunting to think about this being on your report; Once your slate is wiped clean, you will have many opportunities to rebuild your credit.
Your score will go down, which will affect your ability to apply for some loans in the future. However, clients can often nurse their score to good health with relative ease. Chapter 7 bankruptcy allows for breathing room and the ability to pay bills on time, reflecting on your credit report. What’s more, once you have gone through the chapter 7 bankruptcy process, your slate is wiped clean and your debt-to-income ratio is back to a healthy level, which allows you to rebuild your credit to optimal financial health and get your score higher to where it was pre-bankruptcy. As of the writing of this entry, I offer for all of my bankruptcy clietns a complimentary enrollment in a post-bankruptcy credit scroe improvement course as part of every case I represent to discharge.
If you’re ready to get your financial health back in order, contact us so we can assess your situation and advise you on which road to recovery we think is best. We are committed to helping you navigate this chapter in your life.
Reach Out to Turn a New Leaf
We offer free and confidential consultations at no obligation, so there’s nothing to lose by talking with a lawyer about your debt-relief options. To get started, call us at 503-278-5400 or toll free at 888-560-8146. You may also complete our online contact form.