A lot of people worry about debt, and for good reason. High levels of debt can plague you, making it hard to sleep at night. Debt can disrupt your daily routine as you struggle to find a way out. If you are flooded with debt, bankruptcy may provide relief. Through Chapter 7 bankruptcy, you may be able to erase some or all your debt and get a fresh start on life.
Chapter 7 Bankruptcy: What Does It Involve?
Chapter 7 bankruptcy is a method to eliminate unsecured debts. It’s a way to wipe the slate clean and start fresh. It’s also known as “straight bankruptcy” because your unsecured debts will be discharged, and you’ll no longer be responsible for paying them back. This means that your creditors cannot pursue you for payment or contact you about their claims.
What Kinds of Debts Can Be Eliminated with Chapter 7 Bankruptcy?
You may be able to eliminate all types of unsecured debt through Chapter 7. This includes:
- Personal loans
- Credit card debt
- Payday loans
- Unpaid utilities
- Medical bills
Essentially, any debt that doesn’t have collateral can be erased through this process.
However, there are some exceptions. Keep in mind that some debts can’t be eliminated with Chapter 7 bankruptcy, so it’s important to know what those are.
The following debts usually cannot be discharged in Chapter 7 bankruptcy:
- Debts for alimony (spousal support)
- Child support
- Divorce property settlements
- Most student loans
- Debts incurred because of fraud or embezzlement
What is Involved in the Process of Filing Chapter 7 Bankruptcy?
The first step is to learn whether you are eligible for this type of debt relief. Requirements include not having received a Chapter 7 discharge during the previous eight years and showing that your household income is below the average for a family of your size.
Once eligibility has been determined, your bankruptcy attorney will prepare the necessary documents for your case and file them on your behalf.
Creditors’ Automatic Stay
Filing is a vital step since it instantly imposes an “automatic stay” on your creditors. This prevents your creditors from taking any action against you, including suing you, seizing your property, garnishing your earnings, evicting you, cutting off your utilities, or harassing you with phone calls. This gives you the chance to work with your attorney to establish a bankruptcy strategy without interference.
Meeting With Creditors and Credit Counseling
A meeting of creditors (also known as a 341 hearing) is a required part of the Chapter 7 bankruptcy process. During this meeting, you will meet with a court-appointed trustee and possibly some of the creditors to whom you owe. You will be asked to provide documentation and answer questions about your income, expenses, assets, and debts at the meeting.
You’ll need to bring documentation verifying your identity, social security number, income, and expenses with you. This can include recent pay stubs and receipts for all your expenses, including bills and other costs.
Once you’ve filed Chapter 7, you will be required to attend an official financial management course. This counseling can be taken online or over the phone.
After 90 days have passed from the filing of your case, you will receive a discharge from the court. You will then receive a discharge order from the clerk of the court, at which time your creditors can no longer collect on any unpaid debt included in your bankruptcy filing.
How Do Chapters 7 and 13 Differ?
The primary difference between these two most common types of bankruptcy is that Chapter 7 wipes out your debt in 90 days, while Chapter 13 involves debt restructuring over a period of three to five years.
Chapter 7 bankruptcy eliminates most debt and you generally do not lose any of your property.
Chapter 13 bankruptcy involves debt restructuring and repayment plans. For a case to be filed under Chapter 13, an individual must prove that they have enough income to repay at least some of their debts over time. The amount of time varies from case to case; it could be three to five years.
Is Chapter 7 Bankruptcy Right for You?
Depending on your situation, Chapter 7 bankruptcy may be the right choice for you.
If you’re struggling to make your monthly payments, are facing harassing collection calls, foreclosure or repossession of your home or car, or have high medical bills, Chapter 7 may be the best option for you.
Our team at Hoverson Law Offices, P.A. will work with you to find out if Chapter 7 bankruptcy is right for you. We can help you understand what Chapter 7 bankruptcy means and how it will affect your finances.
How Hoverson Law Offices, P.A. Can Help
It can be very challenging to decide if you should file for bankruptcy or not. It can also be difficult to know where to turn or whom to trust for guidance.
We understand that it’s not easy, and we want to help you determine the right path for your situation. We’ll spend the necessary time learning about your circumstances and ensuring you are aware of your options. We will work with you to learn if Chapter 7 bankruptcy is right for you or if another option would better serve you.
Michael K. Hoverson has a 35-year history of helping people get back on their feet after a financial crisis. We are here to advise you through this process.
We target Minneapolis, Bloomington, and surrounding Minnesota communities.