What Is a Chapter Bankruptcy?
A Chapter 7 bankruptcy is one type of bankruptcy often called liquidation bankruptcy. If you’re considering bankruptcy, you should understand how a Chapter 7 bankruptcy works and what impact it will have on your credit and future.
How a Chapter 7 Bankruptcy Works
Filing for Chapter 7 bankruptcy places your case under the guidelines of the court. You get a temporary stay against garnishments, foreclosures and evictions. The court appoints a trustee to review your finances, debts and assets. The trustee sells the property that you can’t keep, arranges a creditor meeting at the courthouse to let creditors get answers about your bankruptcy, and oversees the bankruptcy.
Every state has different laws that determine what property you can keep and what you can’t. If you can still make your car loan payments, you may be able to keep your car. Your home may be exempt, but it depends on the amount of equity you have in your home and whether you can pay the mortgage.
A Chapter 7 bankruptcy takes about four to six months. At that time, your debts are discharged, meaning you don’t have to pay them. Not all debts can be discharged under Chapter 7. Student loans, child support and some taxes are not dischargeable. You will still be responsible for them.
Chapter 7 bankruptcies often have other guidelines, such as requiring you to attend a credit counseling class before the bankruptcy. Your income must fall within state guidelines for median income or you must pass a means test that measures your disposable income against your debts.
How Does Bankruptcy Affect Your Credit?
A Chapter 7 bankruptcy stays on your credit report for 10 years from the filing date. Many of the accounts included in the bankruptcy could affect you for up to seven years, but negative accounts typically come off at that time and fall off the report. Some lenders may start to work with you to rebuild credit as early as three years after a bankruptcy filing. You might pay more in interest rates, but you won’t be completely unable to get credit.
Is a Chapter 7 Bankruptcy Right For You?
A bankruptcy is draining, both financially and emotionally. It can be a good option when your debts are more than your income. It depends on the types of debt and your personal situation. Contact a bankruptcy lawyer, like a bankruptcy law firm in Memphis, TN to learn more about the bankruptcy guidelines in your state and to take the next best steps for your situation.
Thank you to the Law Firm of Darrell Castle & Associates PLLC, for their insight into bankruptcy law.