Things You Need To Know About Filing Chapter 7 Bankruptcy
Filing for chapter 7 bankruptcy can be a difficult, stressful choice, but it gives you the opportunity to turn over a new slate and get your finances back in order. To decide whether chapter 7 bankruptcy is right for you, here are some things you should keep in mind.
Chapter 7 Gets Rid of eligible debt obligations
A discharge gets rid of eligible debt obligations, such as credit card debt or medical bills. When you file, you list the debts you want to be discharged from. You are required to take a means test to determine whether you are eligible for bankruptcy, which determines that you do not have sufficient income to cover the costs.
The discharge also releases you from liability from creditors. If a creditor attempts to collect discharged debt, they can be sanctioned by the court and fined. Therefore, you have protection from the courts.
What Debt it Doesn't get Rid of
A discharge can't get rid of all your debt, however. Debts such as alimony, student loans, debts for injury, some taxes, and others are not covered under bankruptcy law. For other debts, creditors must ask the courts to determine whether the debt you owe is dischargeable.
Do I Qualify?
To qualify for Chapter 7, you must have little or no disposable income. You must pass a means test that determines your income is below the median of a similar household in your state; If your income is below the median, you qualify. There are other situations where you might not qualify. For example, if you failed to keep adequate financial records or committed perjury, you could be denied.
It comes with an Initial Investment
There are some initial fees to be paid when filing for Chapter 7. There is a $335 administrative fee, and you must pay $30–50 for your credit counseling and debtor education course. Additionally, Bankruptcy attorney fees can cost you up to thousands of dollars. However, if you think filing for Chapter 7 will give you the financial freedom you need, these costs shouldn't dissuade you.
How it Affects Your Credit
A bankruptcy can negatively affect your credit for an extended period of time. Your credit score can drop up to 100 points, though it depends on how much debt was discharged and the creditors connected to the case. A Chapter 7 can also remain on your report for up to 10 years.
However, these repercussions are not permanent. After 10 years, your bankruptcy will not remain on file. You can rebuild your debt in several ways, such as secured credit cards and repaying future debts on time. If you decide against Chapter 7 when it may be the right choice, the missed debt payments, repossessions, lawsuits, and defaults will also hurt your credit, so filing for bankruptcy might be better for your credit in the long run.
You Can Only File every 6 Years
If you file for Chapter 7 now, it might be difficult to file again when something more difficult comes along, so only file if it's absolutely necessary. However, you can file for Chapter 13 if another disaster comes along. While you can only file for Chapter 7 every six years, you can file for Chapter 13 repeatedly, though it will show up on your record.
There's a lot of consideration that needs to be put into filing for bankruptcy. You'll want to determine whether you can avoid filing bankruptcy altogether or how to preserve your valuable assets if bankruptcy is the only necessary option. The best thing to do is contact a Chapter 7 bankruptcy attorney to ascertain whether you should file.