What is Chapter 7 Bankruptcy, and Is It Right for Me?
If you are overwhelmed by debt and looking to start over, Chapter 7 bankruptcy may be an option worth considering. Chapter 7 is often called a “fresh start” bankruptcy because it can eliminate many common debts and give people relief from the constant pressure of collection calls, lawsuits, wage garnishments, and unpaid bills – often in just 90 days.
Chapter 7 bankruptcy is a legal process that allows qualifying individuals to discharge most unsecured debts. A discharge means you are no longer legally obligated to pay those debts. Unsecured debts, such as credit card debt and medical bills, are debts that are not tied to a specific piece of property. Most of my clients lose no personal property because of the bankruptcy exemptions that protect them. The bankruptcy code has evolved to a point where most people can keep and continue paying for necessities like cars and homes.
Do I Qualify for Chapter 7 Bankruptcy?
Not everyone qualifies for Chapter 7. The bankruptcy code is designed to reserve Chapter 7 for people who truly cannot afford to repay their debts.
One of the main qualification tools is called the means test. The means test looks at your income and, in some cases, your allowable expenses to determine whether you have enough disposable income to repay a portion of your debts.
In general:
- If your income is below the median income for a household of your size, you likely will qualify for Chapter 7.
- If your income is above the median, you may still qualify, but the court will look more closely at your disposable income to see if you can cover at least a portion of your unsecured debts.
If the means test shows that you have too much disposable income, you may not be eligible for Chapter 7. That does not necessarily mean bankruptcy is off the table. In many cases, Chapter 13 bankruptcy may still be available and may provide another path toward financial stability.
Which Debts Can Be Discharged in a Chapter 7 Bankruptcy?
One of the biggest benefits of Chapter 7 bankruptcy is the ability to eliminate many unsecured debts. In a typical Chapter 7 case, debts that may be discharged include:
- Credit card debt
- Medical bills
- Personal loans
- Payday loans
- Collection accounts
- Repossession balances
Don’t assume a debt will or won’t be discharged. You need advice from a bankruptcy attorney like me about your specific debts and financial circumstances.
What Happens to My Credit Score After a Chapter 7 Bankruptcy?
After a Chapter 7 bankruptcy, your credit score will go down. A lower score will affect your ability to apply for some loans in the future. Also, your credit report will include a notation that you filed for bankruptcy, which usually remains on your report for up to 10 years. It’s daunting to think about this being in your report. However, once your slate is wiped clean, you will have many opportunities to rebuild your credit.
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. On-time payments can help boost your credit over time. What’s more, your debt-to-income ratio will return to a healthy level, which allows you to rebuild your credit to optimal financial health and may get your score higher than it was pre-bankruptcy.
An experienced Chapter 7 bankruptcy attorney can advise you on how to rebuild your credit. I currently offer all of my bankruptcy clients complimentary enrollment in a post-bankruptcy credit score improvement course as part of every case I represent to discharge.
Frequently Asked Questions
What happens to secured debts like car loans or mortgages in bankruptcy?
Debts that are attached to a tangible asset (secured) are generally dischargeable, though you would need to surrender the property. If you file for bankruptcy and eliminate a car loan, you would be expected to surrender the car to the bank. 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. In my bankruptcy practice, I work with clients to maximize their exemptions so they can keep as many assets as possible.
Which debts are usually not discharged in bankruptcy?
Notably, a Chapter 7 bankruptcy cannot discharge student loans, marital support obligations, criminal court fines and fees, and certain taxes. Most debts are eliminated in Chapter 7 bankruptcy, but the bankruptcy laws exclude a few limited categories of debt.
Reach Out to a Chapter 7 Bankruptcy Attorney to Turn Over a New Leaf
If you’re ready to get your financial health back in order, contact a Chapter 7 bankruptcy attorney at our firm 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.
We offer free and confidential consultations at no obligation, so there’s nothing to lose by talking with a Chapter 7 bankruptcy attorney 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.
