Some basics about Chapter 7 bankruptcy

The decision to file bankruptcy should never be a light one. Though bankruptcy can be a way to wipe the proverbial slate clean -- or at least get ahead of debt so you can move on with life -- it does come with consequences and requirements. Understanding bankruptcy before making a commitment to this solution is important.

Chapter 7 bankruptcy is one type of bankruptcy filing. You have to pass what is called a means test -- an eligibility threshold -- to be able to file for Chapter 7 bankruptcy. Even if you don't quality for Chapter 7, you might be able to file Chapter 13 bankruptcy.

If you do quality for Chapter 7, you will be required to convert many of your assets to cash to make payments to creditors in exchange for your debt being discharged. The rules of individual states determine what assets you can keep and which ones you must sell to pay creditors. Usually, you are allowed to keep items required for daily living and work such as a vehicle and personal clothing. Personal and family items are also allowed, and in some cases, you can keep your home.

Chapter 7 bankruptcy does not discharge certain types of debts, including back taxes owned or student loan debt. Following bankruptcy, you will also deal with credit-score reducing report items. These items will appear on your credit score for some time; the good news is that, because much of your debt has been dealt with, you are in a position to make timely payments on other debt and rebuild your credit.

Chapter 7 bankruptcy can be a positive decision that helps you overcome a serious financial situation. It's just never a decision that should be made without research; consider seeking information about bankruptcy from a legal professional before making your decision.

Source: Investor Place, "Should I File for Chapter 7 Bankruptcy?," Jessica Whitmore, accessed Nov. 18, 2015

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