Chapter 7 bankruptcy is one you file for liquidation. During this bankruptcy proceeding your assets will be sold as directed by the judge to pay off your creditors. It is essentially a bankruptcy proceeding for consumers who don’t have enough money to pay off their creditors.
In order to buy this some time to recover financially and satisfy creditors, consumers may file for Chapter 7 bankruptcy. A Chapter 7 bankruptcy claim relinquishes your nonexempt property to the bankruptcy trustee. At this point the trustee will proceed to liquidate the property (convert to cash), and subsequently distributed to your creditors.
Not all individuals can qualify for Chapter 7 bankruptcy. Some of them that do qualify are people that own real property in the US, working individuals, and those who live or have a residence in the US. You may file for Chapter 7 bankruptcy provided you have not filed for either chapter 7 or Chapter 13 during the last six years.
After deciding to declare bankruptcy, your lawyer must verify your qualifications to do so. Your lawyer will conduct a financial audit to determine if in fact you are in a financial bind significant enough for a Chapter 7 bankruptcy declaration. During this period your monthly earnings will be scrutinized, and will have to be equal to or less than the median income for your particular state in order to qualify for Chapter 7 bankruptcy. And of course your monthly expenses such as, your rent or mortgage payment, food, other monthly bills will be deducted from your monthly income.
If your income is at least $100 under the state’s median income than you will have the right to file Chapter 7 bankruptcy. During Chapter 7 bankruptcy, which is different than Chapter 13 bankruptcy, all of your debts will be erased and you will be given a fresh start financially.
The biggest drawback to chapter 7 bankruptcy is of course the total destruction of your credit for up to 10 years, an inability to borrow for at least two or three years, depending on when your bankruptcy is discharged. This is why most reputable debt management or law firms will advise you not to file a Chapter 7 claim other than as a last resort.
In future articles we will go into much more depth on Chapter 7 bankruptcy, including qualifications to make a claim, as well as, the short and long-term ramifications Chapter 7 bankruptcy will impose on you.
The information contained in this site does not constitute legal advice and you should consult a competent licensed attorney for all legal matters. For more details, please see our Legal Disclaimer.
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