There are many ways people can get into debt in today's economy. You might have lost your job, fallen behind on bills, or fallen ill and had mounting medical bills. Whatever the reason, if you feel like you'll never get caught up and collection agencies are hounding you, it may be time to consider filing for Chapter 7 bankruptcy. This is the most common form of filing bankruptcy for individuals, and it can virtually eliminate your debts, giving you a fresh financial start. But what is Chapter 7 and how does it work?
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What Is Chapter 7? A Bankruptcy Attorney Explains
Chapter 7 is also often referred to as a "straight bankruptcy." It is a means to wipe out your current, non-secured debts so that you can begin with a clean financial slate. Your non-exempt assets will be liquidated by the court and sold to pay a portion of your current debts. To qualify, you'll have to pass a "means test" to prove that you fall below a set standard and are eligible to file.
You'll have to list all of your assets as well as your debts, even those that can't be included in the filing, such as child support obligations. The court will review your petition and determine whether they will discharge your debts for you. During these proceedings, a "stay" will be filed and all creditors notified; at this point, they can no longer contact you in any way regarding the money you owe them. This can give you a bit of breathing room and take away some of the stress of being in a financial bind.
What Is Exempt?
There are certain assets or possessions you can keep while the courts take you through the process, including the home you currently reside in, any insurance policies with a cash value, household furnishings and supplies, clothing and tools needed for employment. Other items may also be exempt, including equity in your house up to a predetermined amount, jewelry up to a set value and a portion of your wages as well as any government assistance.
The Benefits Of Filing Bankruptcy
There are numerous reasons your bankruptcy attorney may suggest filing for Chapter 7. First among these is that most of your debts will be discharged within just a few months, letting you get on with your life without the threat of collection companies and the stress of not knowing how you'll pay your bills. When your debt is discharged, you'll also continue to have all the property you need to continue living comfortably, as most of it will be exempt.
The Option To Keep Or Return Your House
If you own a house or car, Chapter 7 allows you to continue paying any unpaid balances on them just as you did before so that you can keep your house and car. If you want to, however, you can turn your home over to whoever holds the mortgage, thereby relieving you of any obligation to continue paying the mortgage. Of course, you'll have to find a different place to live if you choose this path, but if you own too much house with too much debt, renting may be a better option for you until you get back on your feet financially.
But the most important benefit of filing Chapter 7 bankruptcy is the peace of mind you'll have knowing that you are getting a fresh start without thousands of dollars in debt to prevent you from getting ahead in life. If this sounds like a good plan for you, contact a bankruptcy attorney to learn more.
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