What Do I Need to Know About Chapter 7?
The United States Bankruptcy Code outlines the rules for filing the various chapters of bankruptcy, including Chapter 7. In a Chapter 7 bankruptcy, also known as a straight bankruptcy, your debts are discharged and you're released from your liability to repay those debts. While Chapter 7 bankruptcy can potentially be the best solution for your financial situation, there are several things to consider prior to filing.
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Function
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The U.S. Bankruptcy Code offers protection to individuals and businesses who are unable to repay their debts. A Chapter 7 bankruptcy is known as a "straight bankruptcy" because it involves debtors who have outstanding debts and little or no assets with which to repay those debts. The purpose of a Chapter 7 bankruptcy is to erase debts and eliminate liability to one's creditors.
Eligibility
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The U.S. Bankruptcy Code allows you to file Chapter 7 if you're an individual, partnership, corporation or other business entity, regardless of the amount of your debt. To be eligible for Chapter 7, you must meet the means test for income. The means test compares your median income for the previous six months against federal income guidelines. The median income limits vary by state and family size. For example, a family of four in Maryland is allowed a maximum median income of $101,441, while a family of comparable size in Arkansas is allowed $57,699, according to Total Bankruptcy.
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Process
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The Chapter 7 process begins when you file a petition in the nearest district bankruptcy court in your state. The filing fee for Chapter 7 is $299 as of October 2010. You must provide the court with a complete list of your debts and assets, including any assets you want to keep. You're required to attend a meeting of creditors, where you're questioned about your financial situation. If no new issues arise, any assets you have are seized, liquidated and distributed to your creditors. Your bankruptcy is discharged and the court issues a final decree, which states that you've satisfied all your obligations.
Time Frame
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On average, it takes approximately four to six months from the initial filing to complete a Chapter 7 bankruptcy filing.
Benefits
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The primary benefit of filing Chapter 7 bankruptcy is that it provides a financial "fresh start" for you if you're unable to meet your financial obligations. Filing Chapter 7 also provides you with protection against collection actions by your creditors, including civil lawsuits.
Considerations
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One of the primary considerations when deciding to file for Chapter 7 is the long-term impact to your credit. A Chapter 7 bankruptcy filing remains on your credit report for 10 years, making it more difficult to obtain new lines of credit, buy a car or home, gain employment or secure utility services. You can also expect to pay much higher interest rates until your credit history improves.
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References
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