Chapter 7 bankruptcy can be a way out of a debt situation that is crippling you or your family. No bankruptcy decision should be made lightly, however, as each comes with its own set of consequences. What you gain in future financial freedom, for example, might be a trade for loss of convenience and options in the short term. Here are a few things to consider before filing for Chapter 7 bankruptcy.
First, know that not everyone is eligible for Chapter 7. If you have a certain amount of reliable income or your debt and income ratios don’t meet a certain level, you might have to file for Chapter 13 instead. Chapter 13 bankruptcy involves creating a plan to repay debt over a few years; some debt is discharged and some is repaid and you often get to keep certain assets, such as homes and cars.
In Chapter 7 bankruptcy, your assets are liquidated, which means they are sold. The cash raised is then used to make a settlement payment to creditors. Depending on the situation, all or some of the remaining debt is then discharged. You aren’t left with nothing, though. Even in Chapter 7, you are able to keep some exempt items that might be required for daily living or working.
On thing worth nothing is that certain types of debts are not discharged in bankruptcy. This includes both tax debt and medical debt, which means you will still have to work with creditors or tax agencies to pay those debts.
Understanding what the best option for your situation might be can be difficult. Working with a bankruptcy attorney helps you understand your financial situation and what options might be relevant to you so you can begin the process of overcoming crippling debt and creating a more stable future.
Source: Investor Place, “Should I File for Chapter 7 Bankruptcy?,” Jessica Whitmore, accessed March 08, 2016