Chapter 7 bankruptcy provides individuals and businesses a way to eliminate most debts and start fresh. It’s important to know what this process entails and how it might affect your financial situation.
What is Chapter 7 bankruptcy?
Chapter 7 bankruptcy, often called “liquidation bankruptcy,” allows individuals to discharge most unsecured debts. In some cases, non-exempt assets may be sold to repay creditors.
Who qualifies for Chapter 7 bankruptcy?
To qualify, you must pass a means test, which examines your income and expenses to determine if you meet the eligibility requirements. If your income is below the median level for Texas, you are likely eligible.
What debts can Chapter 7 bankruptcy eliminate?
Chapter 7 bankruptcy can discharge unsecured debts like credit card balances, medical bills, and payday loans. However, it generally cannot discharge secured debts like mortgages or auto loans unless you give up the property, nor can it eliminate student loans, child support, or most tax debts.
Will I lose all my property in Chapter 7 bankruptcy?
Not necessarily. Bankruptcy laws allow you to keep certain exempt assets, such as your primary home, car, and personal items, up to specific value limits. The court may sell non-exempt assets to repay creditors.
How long does Chapter 7 bankruptcy take?
The process typically takes about four to six months from filing to discharge. This timeline can vary depending on your specific circumstances.
How does Chapter 7 bankruptcy affect credit?
Filing for Chapter 7 bankruptcy will lower your credit score and remain on your credit report for up to 10 years. However, many people can rebuild their credit within a few years by making sound financial decisions.
Chapter 7 bankruptcy offers a fresh financial start for those burdened by debt. Knowing the eligibility requirements, potential outcomes, and steps involved can help you decide if this option is right for you.
