Filing for Chapter 7 bankruptcy can be scary, but it’s important to remember that it’s just a legal process designed to give people a fresh start by removing their unmanageable debts. At Grady BK, PLLC, we concentrate on Chapter 7 and Chapter 13 bankruptcy, and we make the process as easy as possible for our clients.
If you have found this site by searching for debt relief solutions, you’ve come to the right place. This article will focus on the basics of Chapter 7 bankruptcy and how it differs from Chapter 13. We’ll talk about who is eligible, how it works, and what exactly happens after you file.
Since 2020, Americans at all economic levels have been struggling. The increased cost of living means more people are relying on credit cards to make ends meet. Chapter 7 can help you restructure your finances, remove the debts that are weighing you down, and plan for a bright future free of financial strain. If you need your bankruptcy questions answered, call Grady BK, PLLC today.
What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is a legal way that people who are overwhelmed by debt can find relief. It’s sometimes called “liquidation bankruptcy,” but it doesn’t necessarily mean losing the things you own. The law gives you exemptions that protect your assets/property and allow you to wipe away your unsecured debt (credit cards, personal loans, medical bills, repossessions and judgments).
To qualify for Chapter 7, you must complete a “means test” that compares your income to your state’s average income for a household of your size. For instance, if you have a family of four and your income is not as high as an average family of four, you will qualify for Chapter 7. If your income is above that amount, you may need to explore other options, like Chapter 13 bankruptcy. Chapter 13 involves a repayment plan to pay back a percent of your debt over five years.
Common Fears About Bankruptcy
People often worry that filing for bankruptcy will leave you with nothing, but that’s not the case. The law purposely provides exemptions to keep your essential assets safe. Your home, your vehicle, and your treasured personal items will all be safe. No one wants to leave you without the means to make a living.
Chapter 7 bankruptcy is a way to start over financially, but you don’t start your whole life over from scratch. These exemption protections mean you can focus on rebuilding your future from the comfort of your own home, surrounded by your meaningful possessions, and free from the heavy weight of debt.
How Chapter 7 is Different from Chapter 13
Chapter 13 bankruptcy is sometimes called “reorganization bankruptcy.” Unlike Chapter 7, Chapter 13 focuses on restructuring your debts into a manageable repayment plan lasting three to five years. It is particularly useful for people who have a regular income who make too much money to qualify for Chapter 7. Chapter 13 allows you to catch up on missed mortgage or car payments, and it can stop a foreclosure on your home.
The key difference between Chapter 7 and Chapter 13 bankruptcy is that Chapter 7 provides a quicker resolution that does not require a repayment plan. However, you may not qualify if your income is higher than average. Chapter 13 involves a longer commitment and is designed for people who can afford to repay some of their debts over time.
Stopping Creditor Calls with an Automatic Stay
Most unsecured debts, like credit card bills, medical expenses, and personal loans, can be discharged under Chapter 7 bankruptcy. This means you’re no longer legally required to pay them once your bankruptcy is complete. As soon as you file, an automatic stay goes into effect. It stops your creditors from contacting you, garnishing your wages, or proceeding with lawsuits against you.
The Impact on Taxes and Credit Scores
When debts are cleared in bankruptcy, you don’t have to pay taxes on them, which is good news. However, the fact that you filed for bankruptcy can stay on your credit report for up to 10 years. This might lower your credit score at first, but over time, the impact decreases. If you work on rebuilding your credit by making timely payments and using credit wisely, you can improve your score before the bankruptcy even drops off your record. We will give you information on how to rebuild your credit after bankruptcy.
How to File for Chapter 7 Bankruptcy
Filing for Chapter 7 can be a complicated process, but our bankruptcy attorney at Grady BK, PLLC, has decades of experience helping people just like you. Here are a few of the main points you’ll need to know:
- Eligibility: Begin by figuring out if you qualify for Chapter 7 through a means test. Your attorney can just ask you a few simple questions to help you.
- Credit Counseling: A credit counseling session with an approved agency is mandatory to continue. The court will want you to understand alternative methods of debt resolution before you file bankruptcy. Our attorney will tell you where to find these online counseling services.
- Preparing Documents: Gather all the necessary financial documents that thoroughly explain your situation. Proof of income, a list of your creditors, and tax returns will all be required.
- Filing the Bankruptcy Forms: Your attorney will fill out the required paperwork and file it with the Bankruptcy Court. We make sure everything is done correctly the first time so you never encounter complications in the process.
- Attending the 341 Meeting: With your attorney present, you’ll meet with a trustee to discuss your bankruptcy. Your creditors will have a chance to attend as well, but most creditors never show up for the 341 meeting.
