Conditions and Costs of Chapter 7 Bankruptcy

Also known as financial liquidation. Wipes out debts for individuals in six months or less. The property sold to your creditors cannot include portions of equity in your car or home, and exemptions vary by state.

Who Qualifies

You are an individual or small business owner with too much debt to file for Chapter 13.

You want to wipe your financial slate clean.

You are willing to give up certain kinds of property for sale to your creditors.

Is Chapter 7 Bankruptcy your best option?

Chapter 7 bankruptcy is essentially the elimination of all of your debts, unlike Chapter 13, in which you reorganize your debts and make payments. Chapter 7, also called liquidation, is the most popular form of bankruptcy, as it allows you to start fresh. However, it has major drawbacks - bankruptcy will ruin your credit for several years, making it nearly impossible to finance a car, buy a house, or obtain unsecured credit cards.

When you file bankruptcy, usually your bank accounts will be temporarily frozen while your assets are examined. Bankruptcy laws vary in some states, so check with your state's court system.

If your financial difficulties are a result of student loans, alimony, or child support, a chapter 7 bankruptcy will not eliminate these debts. Examine your debts to be sure that bankruptcy will cover them.

If you file a chapter 7 bankruptcy, you must show that your income is not sufficient enough to cover your outstanding debts. If your debts involve any co-signers, they will become financially responsible for paying the debt. As soon as you file the bankruptcy with your local court system, creditors are prohibited from collection activity until the bankruptcy is discharged - approximately 4-6 months.

If you've looked into credit counseling and still feel that chapter 7 bankruptcy is your best option, you can either hire a bankruptcy attorney or file "pro-bono". With a little bit of knowledge and a few visits to your library or bookstore, filing a chapter 7 bankruptcy by yourself isn't that difficult.

top