Chapter 7 Bankruptcy
Often referred to as a “liquidation” bankruptcy.
A Chapter 7 bankruptcy is the most frequently filed bankruptcy in the United States. Chapter 7 bankruptcy centers around helping those with debt who have little to no income to pay back to their creditors. Individuals who are unable to pay their bills can file and essentially walk away from their debts to receive a fresh start. Businesses can also file for Chapter 7 bankruptcy to liquidate and terminate their operations.
A Chapter 7 bankruptcy is a basic liquidation of an individual’s property for the purpose of repaying creditors and getting rid of any remaining debts. Many debtors think all of their assets will be taken, but that is not true. The only time you really lose assets is if they are worth far more than you may owe on them, they are not exempt, and you do not want to pay to keep them.
Chapter 7 bankruptcy eliminates most kinds of unsecured debt. Unsecured debt is any debt that is not secured by a piece of property. Unsecured debt is then divided into priority and nonpriority debt. Priority debts are typically unable to be discharged by filing for bankruptcy and are paid before other debts, and include taxes, child support, and alimony. Nonpriority debt is the last thing to get paid and is dischargeable. Examples of nonpriority debt include credit card debt and medical debt. Secured debt is different from unsecured debt in that it is supported by some form of collateral or property in which a creditor can recover if you are unable to make a payment.
The bankruptcy process typically takes 4 months from the day the case is filed until the day you get your discharge. There will only be one hearing that you will have to attend, called a meeting of creditors. At the meeting, a bankruptcy trustee will review your petition for Chapter 7 bankruptcy and will likely ask some questions.
If you are behind on house or car payments, filing a Chapter 7 bankruptcy might not be the best option for you if they are things that you want to keep. However, if you are okay with wiping your slate clean and walking away from everything or if you are current with payments, Chapter 7 may be a viable solution for you.
A Chapter 7 bankruptcy will remain on your credit report for 10 years from the date it is filed.