When bills starting piling up, and credit card or personal loan balances seem insurmountable, debt can become a source of great anxiety. If you’ve exhausted all other avenues for regaining control of your finances, there are fortunately federal laws that can help. For some, Chapter 7 bankruptcy represents a path to resolving unsecured debt and starting anew.
Chapter 7 bankruptcy—the most commonly filed type of bankruptcy in the U.S.—is ideal for those who don’t hold many assets and have debts that exceed half their annual income. If you qualify, you may be able to have your eligible debts discharged or forgiven. If you think Chapter 7 bankruptcy could be right for you, it’s important to familiarize yourself with what it entails.
Are you qualified?
In order to file for Chapter 7 bankruptcy, you must meet the following requirements:
- You cannot have a dismissed bankruptcy petition in the past 180 days due to a failure to comply with the court, or because your creditors sought court relief for recovery and you voluntarily withdrew your petition.
- You’ll need to pass a means test, which will examine your assets, expenses and income.
- You cannot have been discharged from Chapter 7 bankruptcy within the past eight years, or from Chapter 13 bankruptcy within the past six.
It’s not without consequences
Filing for Chapter 7 bankruptcy can potentially give you a clean slate with certain debts, but it’s not entirely free of consequence. Once you file, your credit score will drop, and the bankruptcy will be on your credit report for 10 years. During that period of time, you may find it difficult to get approved for credit, but your credit score should gradually improve with responsible behavior.
The filing process
If you meet the eligibility requirements, and you’ve decided that Chapter 7 bankruptcy is right for you, the next step is to file. You should be aware, however, that it’s not as simple as just submitting some paperwork—although you’ll need to do that too.
You’ll need to undergo credit counseling before you can file. Also, it’s imperative that you gather all your relevant financial documents, including statements and pay stubs. Later a trustee will arrange for you to meet with your creditors. From there, the trustee will review your paperwork and determine whether or not you are eligible for Chapter 7 bankruptcy.
If the trustee deems you eligible and the bankruptcy moves forward, they will then determine if you have assets that can be used to service your debts. You may need to return collateral to your creditors as a form of repayment.
Lastly, you’ll need to complete an education course by a non-profit credit agency. After all is said and done, you can expect to be discharged after three to six months from filing, and your eligible debts will then be forgiven.
The Chapter 7 bankruptcy process is a complicated one, and you may find it best to not go it alone. An experienced bankruptcy attorney can assist you in filing, and they could prove to be a valuable asset on road to financial recovery.