When the going gets tough, sometimes there is no other option but to file for official bankruptcy and consult your local bankruptcy attorney. Bankruptcy is a federal court process designed to help people and businesses either eliminate their debt or repay them under the protection of bankruptcy court. It is extremely common, especially in times of financial hardship. There were an estimated 1,071,933 bankruptcy filings in the U.S. during 2013.
It’s important to know that there are different types of bankruptcy plans (Chapter 7, Chapter 11, Chapter 13 bankruptcy), designed to help people in different degrees and types of debts. This is a review of Chapter 7 bankruptcy.
What Is It?
Unlike Chapter 13 bankruptcy, filers of a Chapter 7 case don’t have to file a plan of repayment. In fact, Chapter 7 is know as “liquidation” bankruptcy because the bankruptcy trustee gathers and sells the debtor’s nonexempt assets to use the proceeds to pay their creditors. The Bankruptcy Code will allow the debtor to keep certain “exempt” property.
How Do You Know If You’re Eligible?
In order to qualify for Chapter 7, you must be an individual, partnership, corporation or business entity. You won’t be able to use Chapter 7 if you’ve already received a bankruptcy discharge in the last six to eight years, or if you would be able to complete a Chapter 13 repayment plan (based on your income, expenses, and debt burden).
The Automatic Stay
No matter what kind of bankruptcy you file, filing for it puts an “automatic stay: on your debts, which stops creditors from trying to collect. This means that they cannot legally garnish your wages, empty your bank account, or cut off your utility bill.
How It Works
After you file, you will receive a notification that a “creditors meeting” has been filed. You, the creditors, and the bankruptcy trustees will meet at the courthouse, and you will be asked questions about your bankruptcy and the papers you filed. After the meeting, you may be required to surrender nonexempt property.
At the end of the Chapter 7 bankruptcy process, which takes around six months to complete, all of your debts will be wiped clean except for ones that automatically survive bankruptcy, like child support, tax debts, student loans, and debts that the court has declared nondischargable. The record of the case will stay on your credit report for 10 years after it’s arranged.
Most importantly, look for help filing for bankruptcy — whether it be a local bankruptcy attorney or a family member. Your local bankruptcy attorney will be able to help at the creditor’s meeting and in the assessment of your assets.