When you fear you may never repay your loans, improve your credit, or live debt free, filing for bankruptcy may be the best option. With Chapter 7 bankruptcy, you’ll be able to discharge specific types of debt while keeping important assets. However, there are rules and information to consider before filing. Here’s what to expect when seeking to discharge loan debt and other debt by filing for Chapter 7 bankruptcy.
What is bankruptcy?
Bankruptcy is a legal process that allows an individual who is unable to repay their credit cards, personal loans, and other debts to discharge, or eliminate, their debts. The debts that are discharged depend on the type of bankruptcy that person files for. In some cases, an individual may have their debts partially discharged and be required to create a payment plan to pay back the rest. Bankruptcy cases are handled in federal court. Chapter 7 and Chapter 13 are the two most common types of bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is designed for people with a below-average income for a household of their size. In a Chapter 7 case, the law says most of your assets are exempt from liquidation, meaning you won’t lose them. A debtor will typically get to keep property like their home, car, and money earned after having filed for Chapter 7 bankruptcy. You’ll also be allowed to discharge most unsecured debts that don’t have a lien. Credit card debt, medical bills, personal loans, and some taxes are typically discharged. Bankruptcy can also be a step toward repairing credit.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is designed for people with an above-average income for a household of their size. The law lets a debtor reorganize their loan payments and debts and create a payment plan or agreement to pay back a percentage of what they owe to each creditor. For example, you may modify your car loan to reduce monthly loan payments, and second mortgages may be discharged. You also get to keep your assets in a Chapter 13 bankruptcy case.
Debt Wiped Out by Chapter 7 Bankruptcy
Chapter 7 bankruptcy will discharge most types of unsecured debt, meaning debt or loans that are not backed by collateral or a lien on specific property. Debt from credit cards, medical bills, judgements, and some old taxes are typically discharged. A debtor may also be able to discharge late utility bills, personal loans, money owed to collection agencies, car accident claims, and more in a Chapter 7 bankruptcy case.
Debt Not Wiped Out by Chapter 7 Bankruptcy
While Chapter 7 bankruptcy will discharge most of your debts, it doesn’t discharge all of them. A debtor will still be responsible for paying child support, alimony, student loan debt, and some taxes. Debts for luxury items and debts incurred through fraud may also not be discharged.
Assets You Can Keep
If you file for Chapter 7 bankruptcy, the law allows you to keep physical property such as your home and car as well as financial assets like retirement funds, college funds, and wages earned after you file. You may also get to keep some home equity.
Although you will get to keep most of your property, there may be some items that are not exempt from liquidation. This may include a second car, a second home, and expensive or valuable items. Talking with a lawyer can ensure you have correct information regarding which property would be at risk of liquidation.
Who Qualifies for Chapter 7 Bankruptcy?
Chapter 7 bankruptcy was designed for people who have a low income and don’t have the financial resources to pay back their credit card debts, loans, and other debts. To qualify, your last 6 months of income must be lower than the average income for a household of the same size as yours. You must also pass a “means test” to prove you don’t have the finances to pay back loans and debt. If you don’t meet the qualifications for Chapter 7 bankruptcy, you may still qualify for Chapter 13 bankruptcy or other debt relief options.
Benefits of Filing for Chapter 7 Bankruptcy
Filing for Chapter 7 bankruptcy can be the first step to finally getting debt free, rebuilding credit, and having a stronger financial future. While bankruptcy will show on your credit history for 7 to 10 years, many people can borrow money again within 6 to 12 months of having filed for bankruptcy, and some even see an improved credit score. Once you file, each creditor is required by law to stop harassing you thanks to an automatic stay that the court implements. You’ll also get to keep most or all of your property, discharge most unsecured debt, stop wage garnishment, and more.
Keep Important Assets
Although you may need to liquidate nonexempt assets, the court lets you keep property like your car, home, college funds, and savings for when you retire. You may also get to keep some of the equity in your home.
Eliminate Credit Card Bills and Other Unsecured Debts
Filing for bankruptcy allows you to discharge unsecured debt like credit card bills, medical bills, judgements, personal loans, and some old taxes. It will also discharge the debt from your credit report and help improve your credit. This may allow you to obtain new credit sooner.
Stop Wage Garnishments and More
When you file for Chapter 7 bankruptcy, the courts stop creditor harassment and wage garnishments, as well as protect your home from foreclosure and protect your car and other property from repossession.
How to File for bankruptcy
An attorney familiar with bankruptcy law can help you file with the court for Chapter 7 bankruptcy and explain what to expect during your legal case. They’ll examine your financial situation – including your credit card debts and loan debts – and discuss your debt relief options, including bankruptcy. Before you file for bankruptcy, you must attend an online credit counseling session. There, you’ll receive information about the pros and cons of filing for bankruptcy and how it may affect your credit, learn about alternative debt relief options, and more.
When you’re ready to file, an attorney will help you fill out and submit the correct legal forms and file a petition with the bankruptcy court. As with all bankruptcy cases, your case will be handled in a federal court.
What Happens When You File for Chapter 7 Bankruptcy
A lawyer will provide guidance and support throughout your bankruptcy case. After you file, you will receive information regarding any property that must be sold to help repay the money you owe a creditor. Fortunately, most assets are considered exempt.
The court will implement an automatic stay, which requires each creditor to stop contacting you. Each creditor must also stop negatively reporting on your credit and garnishing your wages. Automatic stays protect your income and property and put an end to creditor harassment. If you continue to be contacted by a creditor, consult an attorney for assistance.
Within 30 days of having filed for Chapter 7 bankruptcy, your case will receive a date for a simple court hearing. Your debts will likely be discharged within a few months after your court date.
Other Debt Relief Options
Filing for Chapter 7 bankruptcy can be a step towards better credit, a stronger financial future, and a debt free life, but it’s not the only debt relief option available. You may qualify to pay off debt through debt settlement, by selling your property, refinancing or restructuring your mortgage, and more. Working with an attorney is the best way to find out which debt solutions you qualify for based on your financial situation.
Is Filing for Chapter 7 Bankruptcy Right for Me?
Whether or not filing Chapter 7 bankruptcy is the best option depends on a variety of factors, including your loan debt and other debts, income, assets, budget, and more. The best way to determine if filing for bankruptcy is right for you is to talk with an attorney who’s familiar with bankruptcy code and bankruptcy law. They’ll be able to provide more information.
Benefits of Working with a Lawyer
Facing legal and financial decisions can be scary. Working with an attorney can help ensure you’re making decisions based on accurate information. At Jump Legal Group, our team is experienced in bankruptcy law and will help you understand what happens when you file for Chapter 7 bankruptcy. We’ll discuss your debts and finances, help find the best debt solution based on your unique circumstances, stop creditor harassment, and help you improve your credit. The Jump Legal team will work with you throughout the entire bankruptcy process and keep all communication confidential. Let us help you get debt free.