Finance Globe

U.S. financial and economic topics from several finance writers.
3 minutes reading time (502 words)

Chapter 7 Bankruptcy

It’s tough if you’re at a point where you’re considering bankruptcy - it can be really disheartening to realize you’ve been swamped by your debts.

And you probably already know that bankruptcy has serious long-term consequences to your credit history. But in certain situations, bankruptcy may be the best way to get that fresh start you desperately need.

The U.S. Supreme Court said this about the purpose of bankruptcy law back in 1934, “It gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.”

Let’s look at some important information on bankruptcy. There are two types for consumers:
  • Chapter 7 - also known as straight bankruptcy or liquidation
  • Chapter 13 - also known as a reorganization or repayment plan bankruptcy

Chapter 7 is the type most people think of when they are talking about bankruptcy.

How Chapter 7 works
Once you petition for Chapter 7 bankruptcy protection, your creditors will be notified by the courts about your pending bankruptcy, generally within a couple weeks.

Once your creditors are aware of your petition for bankruptcy, they can no longer contact you about your debts. The calls and threatening letters will stop.

If a creditor calls you before they are notified by the court, you can tell them yourself that you have filed for bankruptcy - give them your case number and your filing date - and they should cease their attempts to collect the debt.

Many types of non-secured debts can be discharged in Chapter 7 bankruptcy, including credit cards, personal loans, payday loans, and medical bills.

A few of the more common types of debts that can’t be discharged include past due alimony or child support, most student loans, recently owed back taxes, debts incurred through fraud, debts incurred from driving while intoxicated, and debts resulting from criminal acts by the debtor such as embezzlement and larceny.

Much of your property will be sold, or liquidated, and your creditors will be paid a portion of the proceeds relative to the amount you owe. They may not get all of what you owe, but they will have to accept what they get and discharge the debt.

You will be allowed to keep some of your property up to a certain value limit. Property you can keep may include your home, an inexpensive car, and certain personal items.

It’s also possible to keep a credit card if the account will not be included in the bankruptcy, and you are paying on that account as originally agreed.

Chapter 7 bankruptcy will usually stay on your credit report for ten years - but your creditors who lost money due to your bankruptcy may never do business with you again, even long after the ten years pass.

This article is for general informational purposes only and is not intended to replace proper legal counsel. Please consult a bankruptcy attorney familiar with the laws in your state.

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Sunday, 21 April 2024

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