What is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is also called liquidation bankruptcy. In this type of bankruptcy, debtors seek debt forgiveness by the liquidation of their assets and repayment of debt through the proceeds of liquidation. Not all assets are liquidated, and some assets are exempted. However, the liquidation factor of Chapter 7 bankruptcy makes it extremely risky because the debt loses some of its assets through its selling. For this reason, Chapter 7 bankruptcy is also known as straight bankruptcy. It also has future implications for the credit score as it stays on the debtor’s credit report for ten (10) years.
Table of Contents
- What Documents Are Needed To File For Chapter 7 Bankruptcy?
- Advantages Of Chapter 7 Bankruptcy
- Disadvantages Of Chapter 7 bankruptcy:
- Bottom Line
What Documents Are Needed To File For Chapter 7 Bankruptcy?
There is a list of documents required with a Chapter 7 bankruptcy petition. The requirements vary for each State, and it also depends on the nature of each case. That said, the requisite documents to file for Chapter 7 bankruptcy are;
- Pay slips
- Documents of tax returns
- Title to your vehicles
- Details of your exempt assets — house, jewelry, and other expensive items.
- If you have child/alimony support, documentation proof about them
- Bank account details — bank statements
- Certificate of credit counseling course
Advantages Of Chapter 7 Bankruptcy
1. Debt Forgiveness:
Chapter 7 bankruptcy gives immediate debt relief as unsecured debts are wiped out.
2. Relief From Creditor Harassment:
Filing for Chapter 7 bankruptcy puts an immediate legal injunction — which means the creditors cannot harass you for repayment. It stops foreclosures and acts as a financial cushion for the debtor. The injunction gives you relief from the pressure and stress that is ballooning from your creditors.
3. Quick Process And Saves Some Assets:
Chapter 7 bankruptcy has a quick process – usually a few months. Moreover, the debtor can keep their assets. With the help of an experienced bankruptcy attorney, you can navigate your case. Before a bankruptcy attorney proceeds to file your case — they will dive into the details of your assets to get rid of as much debt as possible while protecting your assets.
Your lawyer for bankruptcy makes sure to formulate the most favorable exemption clauses that protect your assets. When a debtor gets a bankruptcy discharge order, they need assurance from their bankruptcy lawyer that their exempt assets — house, car, retirement funds, and tax refunds will be protected. Pre-bankruptcy planning is required to make sure all assets of the debtor are secured. If a financial asset is at risk, they know it ahead of time. The bankruptcy attorney also helps the debtor understand the benefit of giving up a certain asset for the discharge of their debt in the long run.
4. Fresh Start With An Improved Credit Score:
Chapter 7 bankruptcy allows the debtor to make a fresh start. It comes as an opportunity to start over and build your credit score after your bankruptcy case is closed. A better credit score helps you get future credit and move your life forward to better financial management and the future.
5. Beneficial For Individuals And Sole Businesses:
Sole businesses and individuals can benefit from filing a Chapter 7 bankruptcy. Small unsecured debts — medical bills, utility bills, credit card bills, private loans, etc, are completely discharged under Chapter 7 bankruptcy. Additionally, all secured debts are also discharged under Chapter 7 bankruptcy.
Disadvantages Of Chapter 7 bankruptcy:
1. It Is Expensive:
Filing for Chapter 7 bankruptcy is costly, and usually, it costs around $245 to $300 for filing for bankruptcy. There are also other administrative costs — obtaining a credit report and an attorney for bankruptcy fees. You are also required to meet certain criteria to be eligible for filing for bankruptcy. Consulting your attorney for bankruptcy about how to keep the costs minimum is beneficial, but ultimately it makes sense to pay such fees to get rid of the debt and make the process run very smoothly.
2. You May Lose Assets:
Hiring a Chapter 7 bankruptcy lawyer Florida ensures a strategy is in place to protect your assets. However, your bankruptcy attorney will probably explain to you not all assets can’t be protected.
3. Some Debts Are Not Dischargeable:
Unfortunately, some debts are not dischargeable under Chapter 7 bankruptcy. The unsecured loans — student loans, tax returns, debts acquired through pretenses or fraud, debts taken to pay legal expenses, credit card purchases with the intent of not paying back, etc. are not dischargeable under Chapter 7 bankruptcy. Your debt obligations for these loans don’t automatically get erased by filing for Chapter 7 bankruptcy.
4. Negative Impact On Credit Score:
If you previously had a good credit score, it drops drastically when you file for Chapter 7 bankruptcy. However, there are always some strategies in place by bankruptcy attorneys on how you can improve your credit score. Chapter 7 bankruptcy shows on your credit report for up to 10 years, thus, it makes the prospect of future borrowing constraints hard. Opening a credit card account is difficult in Chapter 7 bankruptcy.
5. Non-Exempt Assets Can Be Sold By The Trustee:
Exempted assets are not sold, but you may lose property as the trustee may sell out some of your non-exempt assets to pay the debt.
Bankruptcy filing is a serious decision, and must not be a solo decision without discussing it with an experienced bankruptcy attorney. Consultation with a bankruptcy attorney can help you clear a lot of things — whether you’re applying for bankruptcy or simply looking for a piece of legal advice on what alternative options are available to you. The Florida bankruptcy lawyers offer an initial consultation that is usually free, and they weigh the best options available to you, especially if you’re filing for Chapter 7 bankruptcy. Chapter 7 bankruptcy has a social stigma attached to it. Bankruptcy is considered negative, but it is not as uncommon as you’d think. If anything, the goal of Chapter 7 bankruptcy is to help you get a fresh start to rebuild your financial future around debt management so you don’t land in a situation like this again.