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What is Chapter 7 Bankruptcy?
For those who are struggling to pay their debts, it may be a good idea to file for bankruptcy. Depending on your debt levels and overall financial resources, it may be possible to file for Chapter 7 bankruptcy. This is also referred to as a liquidation of assets, and the entire case may be completed within a matter of weeks or months. Let’s take a look at what this type of bankruptcy entails and what it’s benefits are.
Have Debts Discharged in as Little as a Few Weeks
If you have a large credit card debt or some other unsecured debt, it may be possible to have the debt discharged within 90 days or less. What this means is that your creditors no longer have a legal right to collect the debt. This is true even if they don’t agree with the terms of the bankruptcy agreement. However, it is important to understand that debtors need to be honest and comply with the court’s requests between the time a case is filed and the time when the debts are discharged. Otherwise, a debtor could be accused of committing fraud and have the case thrown out along with the automatic stay.
What’s A Stay?
When an individual files for bankruptcy, he or she is generally granted a stay from any type of credit actions. This may prevent a foreclosure from proceeding in court or a civil case against you from being heard. Creditors typically cannot talk to debtors or take any action that may result in the debt being collected unless the debtor wishes to make voluntary payments. The stay generally stays in case until the bankruptcy case is completed.
What Assets are Liquidated to Pay Creditors?
Each state has a list of assets that are exempt from liquidation. Typically, a debtor does not have to give creditors any money in a retirement account or any equity that may have built up in a life insurance policy. Although a home may be liquidated in a Chapter 7 case, a homeowner may be able to keep some or all of the equity that he or she has built in the property. Personal belongings such as clothing or sentimental items are not liquidated, and creditors generally don’t want them anyway. Anything left that has any value will be sold at auction with the proceeds used to pay creditors. A bankruptcy trustee will be responsible for taking an inventory of a debtor’s belongings to determine what should be liquidated.
What Happens if There Is a Remaining Balance?
If there is a remaining balance after assets have been liquidated, creditors will be forced to take a loss. Generally, creditors are not allowed to take a debtor to court to recoup any remaining loan balance or balances that may exist after a secured property has been sold. Filing for bankruptcy to have debts discharged is often better than asking creditors to forgive a balance as forgiven debt is taxable while debt discharged in bankruptcy is not.
How Can an Attorney Help a Debtor Achieve Debt Relief Through Bankruptcy?
Attorneys can help debtors throughout the entirety of the bankruptcy process. They may be able to ensure that paperwork is filed and given to the court on time, which ensures that a debtor’s rights are preserved. Legal counsel may also be able to work with creditors to increase the odds that they accept the bankruptcy petition without objection. Finally, an attorney can work with a debtor after a case is over if creditors make an attempt to collect on a discharged debt.
Struggling with debt is something that can cause emotional, physical and financial issues in an individual’s life. However, bankruptcy can be the way out when there no other viable debt relief options available. Working with an attorney, it may be possible to have a case resolved quickly, which gives a debtor a fresh financial start and the opportunity to learn from his or her previous errors.
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