What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is the most common type of consumer bankruptcy. It is what is commonly known as the “fresh start” bankruptcy. Filing for chapter 7 gives you debt freedom and a fresh start by completely wiping out almost all of your unsecured debt, including credit cards, medical bills, personal loans, and even older tax debt. The entire process takes only 3-4 months. With the help of an experienced bankruptcy attorney, chapter 7 is a fairly quick and painless process. For many people with substantial debt, a chapter 7 bankruptcy is a much better option than a debt consolidation loan or other debt repayment assistance programs. This is one of the reasons it is so common. You pay only a modest filing fee and attorney fee, and in exchange you wipe out thousands and thousands of dollars of debt. Who wouldn’t want that bargain?!
When you file for Chapter 7 Bankruptcy, you will keep paying your normal house and car payments, but stop paying all unsecured debt. Creditors will be forced to stop all contact with you; even lawsuits and garnishments will be stopped. Your bankruptcy attorney will do most of the work – all you have to do is show up for one 5 minute meeting and take two 90 minute credit counseling courses. At the end of 3-4 months, you will receive a discharge from the bankruptcy judge, and you will have achieved debt freedom!
Who should consider a Chapter 7 Bankruptcy?
Obviously the biggest advantage of filing bankruptcy is wiping out all that debt. So to take the most advantage of it, your debt load should be substantial. Our recommendation is to consider bankruptcy if you have more than $10,000.00 in unsecured debt – debt not secured by collateral, such as a car or house. The next step is to look at your assets and your income. Your assets are things like equity in your house, your car, and money in bank and investment accounts. If your assets and income are low enough, you’ll get to wipe out all of your debt and keep all of your stuff. How low is low enough? You’ll need to consult us to find out – the calculations are fairly complex and can only be done correctly by an experience bankruptcy attorney.
Pros of Chapter 7 Bankruptcy
- Wipe out almost all of your unsecured debt – credit cards, personal loans, medical bills, older tax debt, etc.
- Only takes 3-4 months
- Keep your house and your car and your stuff
- Stop all collections activity – no more harassing phone calls, text messages, email, and mail
- Begin the process of rebuilding your credit (you will qualify for new debt immediately after your chapter 7 case concludes)
- If you have a car loan on a car you don’t like, you can get rid of the car and owe nothing
- Get the relief of total debt freedom and the power to move on with your life
Cons of Chapter 7 Bankruptcy
- Your assets and income must be low enough to qualify
- If you are behind on your car or house payments, chapter 7 bankruptcy cannot necessarily save your car or house
- If your credit score is currently high, you will see an initial drop in your credit score
- You will not be able to qualify for most home loans for 2 years after filing
- Some types of debt cannot be discharged (wiped out), such as child support or alimony, student loans, and more recent tax debt
Busting some myths about Chapter 7 Bankruptcy
Two of the main myths about Chapter 7 bankruptcy are (1) that you will lose your house or your car and (2) that your credit score will be trash for 10 years. These are both complete and total MYTHS! First, a competent bankruptcy attorney can always protect your house and your car in a bankruptcy. If your house or car were at risk, we would not advise a chapter 7 but would rather look at a chapter 13. Either way, if you want to keep your house and car, you will have an option to do that. Second, for most people, your credit score will be HIGHER within 1 year of filing for chapter 7 bankruptcy. Now it is true that if your credit score is high, you will see a drop in your credit score when you file for chapter 7. But if you follow our instructions for rebuilding your credit after bankruptcy, you can easily raise it fairly quickly. We even know of one person who achieved a credit score over 800 within 1 and a half years after filing for bankruptcy.
If you’re overwhelmed by debt, always talk to an attorney. An attorney is your advocate and has an ethical duty to help you. Attorneys are far more knowledgeable about bankruptcy and debt collection than non-attorneys and there are lots of scam artists out there that just want your money. We frequently have clients who have gone through “debt consolidation” or “debt help” programs and paid thousands of dollars but still owe their original debts! Once you’ve set an appointment for a consultation, we will gather all the information we need form you and then spend an hour with you, FOR FREE, and go over all your options. If you decide on bankruptcy, we will begin preparing your bankruptcy petition and we will take care of everything. All you need to do is take a required credit counseling course and then appear for what is called your “341 meeting” about a month after we file your case. Your 341 meeting is an opportunity for the bankruptcy trustee to confirm the accuracy of your bankruptcy petition and usually only lasts about 5 minutes. Once that is completed, in most cases we will then receive your discharge in about two months, and you will have achieved debt freedom!
If you’d like more information, please don’t hesitate to give us a call. We are experienced and knowledgeable about bankruptcy and all types of debt and can help advise you based upon your unique situation. Pick up the phone and let’s chat about the option that’s right for you and your family.