Chapter 7 bankruptcy is a liquidation bankruptcy. In this form of bankruptcy your personal property (with a few exceptions) is turned over to the court in a formal procedure. The court will then sell your assets and use the money to repay your creditors. When you file for Chapter 7 bankruptcy your creditors can no longer chase you to repay your debts or take legal action against you.
If this sounds like the answer to your money problems, the bad news is that a Chapter 7 bankruptcy will remain on your credit record for ten years. It is quite likely that during this time you will be unable to apply for or be granted credit. If you are given credit your interest fees will be very high. For this reason consumers should think very carefully about filing for Chapter 7 bankruptcy.
According to the new bankruptcy law passed in 2005 your income must be below the median income for the same size family in your state. If it isn’t, you will have to undergo a means test. This places restrictions on your spending. Under these restrictions you may be allowed approximately $200 a month for food and less than $800 a month for housing and utilities. Once these expenses are paid if you have $100 or more per month in disposable income you may be forced into a repayment plan under Chapter 13 instead of qualifying for Chapter 7 bankruptcy.
Filing for Chapter 7 bankruptcy is a serious issue that carries some severe repercussions. Deciding to opt for Chapter 7 bankruptcy should never be taken lightly. Not only is it incredibly damaging to your credit rating (for years to come) it is also extremely distressing to have all your property handed over to the court to repay your debts.
Before deciding to file for Chapter 7 bankruptcy you should determine if there is any other way to repay your debts. This could mean a loan from a friend or family member that can be paid back on an open-ended basis or selling items privately to repay your debts. Find any means at your disposal to avoid filing for bankruptcy as long as this does not incur further debt that you will be unable to repay.
Out-of-control credit card debt is a major contributing factor in all forms of bankruptcy including Chapter 7 bankruptcy. Consumers should try to repay their credit card debt as soon as possible and never overspend on their credit cards.
If you are heading towards a financial crisis contact a non-profit credit counseling agency and get help with the repayment of your debts. You can also contact your creditors personally and ask for a reduction in your monthly repayments and waiver of late payment fees. Do whatever you can to avoid filing for a damaging Chapter 7 bankruptcy.
You will undoubtedly want to buy a house, car and pay for your children’s education at some point in the future. Filing for Chapter 7 bankruptcy will make it very hard to do so. You might find it impossible to get any form of credit for up to ten years and this could make daily living very difficult. Take any steps necessary to avoid filing for a bankruptcy that will significantly damage your financial status in the future.