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3 things to know before filing for Chapter 7 bankruptcy

If you have a low income and few assets and cannot pay your bills, you may consider filing Chapter 7 bankruptcy. Up to 63% of those who filed for bankruptcy in 2019 chose Chapter 7.

Chapter 7 bankruptcy can result in the dismissal of any of your unsecured debts while allowing you to keep some of your assets. These are some things you should know before you file for Chapter 7 bankruptcy.

Bankruptcy does not discharge all debts

Your secured debts are not typically discharged during bankruptcy proceedings. When you applied for these debts (e.g., your mortgage and car loan), you used collateral, or assets, to get them.

Judges can discharge unsecured debts, such as credit cards, medical bills and personal loans, while they cannot forgive some student loans, taxes, child support or alimony bills.

Property exemptions differ by state

Each state has different exemption regulations. For example, in Texas, you can keep your home and its equity if it is on no more than 10 acres in the city and 100-200 acres (individuals and families, respectively) in the county.

Texas also allows you to keep one vehicle for every driver’s license in the home. You can keep up to $50,000 or $100,000 (personal and family, respectively) in personal property. However, you are only allowed two firearms. Additional exemptions include your wages, insurances, college savings plans, pensions, alimony or child support and government benefits.

Bankruptcy takes time

If you need a quick resolution, Chapter 7 bankruptcy may not work. It can take up to six months to complete the process.

To get the best result out of your Chapter 7 bankruptcy, do not hide assets, be honest in your disclosures, do not transfer assets and avoid adding to your debt for at least 70-90 days before filing.


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