Filing Personal Bankruptcy Under Chapter 7

Those debtors who are under extreme financial pressure in difficult financial times may be able to find relief by filing personal bankruptcy. This is not generally considered the first, best option, but when all else fails, it may provide relief and allow the filer to save their home, depending on their circumstances and the type of bankruptcy they file.

Choosing Chapter 7 Bankruptcy

There are six types of bankruptcy petitions open to filers in the United States, but generally, two of them are common for those filing personal bankruptcy:

• Chapter 7 Bankruptcy, or liquidation, by which the filer has the majority of their debts discharged, although some of their personal property may be liquidated, or sold, to pay off creditors before the discharge.

• Chapter 13 Bankruptcy, or reorganization, by which the filer creates a repayment plan that allows them to pay off most debts, within the parameters of their own disposable income, over a three- to five-year period.

While chapter 13 bankruptcy generally allows filers to keep their property, including their home, chapter 7 is usually more appropriate for those with little property and little disposable income. There are a number of steps to chapter 7 bankruptcy that are similar to chapter 13, but others are significantly different:

• Qualification – which can be difficult under new reforms. Those with too much income or too many recent bankruptcy petitions may be required to file for chapter 13.

• Automatic stay – a hold on the efforts of creditors to collect debts during the bankruptcy process. This also applies to foreclosures, repossessions, utility terminations, and more, unless the creditor requests that the stay be lifted and the court grants it.

• Credit counseling – to ensure that filers may be better able to manage their finances and credit after the bankruptcy is complete.

• Bankruptcy trustee – appointed to manage the disposition of the filer’s property and debts.

• Liquidation – of non-exempt property with sufficient equity to pay creditors. Often, however, those who qualify for chapter 7 do not have enough value in their property to be required to liquidate much, if any, of their property.

• Discharge – most or all of the filer’s debts are discharged, or erased, except those which survive bankruptcy, such as tax debts, support payments, and school loans. In addition, secured debts may be discharged, but the lien holder may still be able to repossess or foreclose on that property if the filer does not continue to make regular payments.

• Credit education – to provide additional help for the filer to manage their finances in the future and avoid further bankruptcy situations.

Getting Legal Help with Chapter 7 Bankruptcy

There are a variety of laws in each state that provide additional protections for those filing personal bankruptcy under chapter 7 specifications, including laws governing property exemptions. Without the help of an experienced bankruptcy attorney, the filer may be unable to take advantage of all those benefits and protect more of their property for them and their family after the bankruptcy.