Does it feel like you’re drowning in debt? Does it seem impossible to make a dent in the amount of money you owe creditors, even if you’ve had a good month? You may have heard that filing for bankruptcy can make paying off your debts more manageable.
But which type of bankruptcy is best for individuals to help them see the light at the end of the tunnel? Is it filing for Chapter 13, a process that can take up to five years to finalize?
For most individuals, Chapter 7 bankruptcy will be the default. Far quicker to complete than Chapter 13, Chapter 7 accounted for over 516,000 bankruptcy cases filed in the U.S. in 2016. That amounted to nearly two-thirds of all bankruptcy cases filed during that year.
Also known as “straight bankruptcy” or “liquidation bankruptcy,” Chapter 7 is overseen by a court-appointed trustee and involves the sale of the debtor’s non-essential assets.
For example, a car that is relied upon to get to work won’t have to be forfeited. However, in order to pay down debts, the trustee may decide to liquidate a stamp or baseball card collection.
In addition to material possessions, the trustee may withhold assets such as cash and money petitioners have in the bank, such as savings accounts. Other types of monetary assets that could be distributed to creditors under Chapter 7 include stocks, mutual funds and other financial investments.
The good news is that if the petitioner has accumulated much equity in their house, they won’t have to lose that principal under Chapter 7. Exempt equity also includes 401k savings accounts, essential home furnishings and clothes.
However, if the petitioner has, say, a luxury handbag or a designer shoe collection, the trustee may choose to sell off these items to pay down the debts owed to collectors.
Disadvantages of Chapter 7
Chapter 7 will significantly negatively impact the petitioner’s credit score for several years to come. So if petitioners are going to apply for a bank loan, a new credit card, finance a car or purchase a new home, bankruptcy protection under Chapter 7 will make it very difficult to do so for a period of roughly seven years after the plan is approved by the trustee.
Advantages of Chapter 7
If being debt-free is the goal, Chapter 7 offers the best chance at wiping out all debts, with certain exceptions.
Chapter 523 of the U.S. Bankruptcy code lists debts that may not be forgiven by Chapter 7. This includes alimony and child-support payments, income taxes owed, student loans, and divorce agreements.
Debtors will need to undergo credit counseling and take a means test to determine eligibility.
Need Help Qualifying For Bankruptcy Protection?
If you feel burdened by your current financial situation, talking with an experienced bankruptcy attorney will help set your mind more at ease.
A skilled bankruptcy attorney will guide you through various court proceedings to reduce or eliminate your debt, or to proceed forward with bankruptcy if necessary. The best place to find a bankruptcy attorney is Attorney at Law.
At AAL, we match you with the best attorney in your area. Our partners have the resources, legal expertise, and experience to navigate you through the highly complex field of bankruptcy law. In addition to a proven track record, our partners also excel in client care.
Don’t wait. Contact AAL today for a free, no-obligation consultation and begin your journey to financial independence.