Clark & Washington

Chapter 7 Bankruptcy: What You Need to Know

If you’re struggling with insurmountable debt, then you may be considering the option of filing for bankruptcy. When it comes to bankruptcy, however, there are two main types to consider: Chapter 7 and Chapter 13. Both have their potential advantages and drawbacks, and which option is best for you can vary greatly based on your financial situation.

Chapter 7 is the most common type of consumer bankruptcy; by having a better understanding of what this bankruptcy type entails, you can make a more informed decision regarding whether it’s right for you. 

What Is Chapter 7 Bankruptcy?

The main characteristic of Chapter 7 bankruptcy that differentiates it from Chapter 13 is that it results in the total liquidation of your assets to pay off as much of your outstanding debt as possible. Once your assets are liquidated, the cash is split up and distributed to your creditors to pay off outstanding balances. This can include medical bills, credit card debt, personal loans, and other debts that were taken out without collateral. Some types of debt are not eligible for discharge through Chapter 7, however. This typically includes student loan debt, child support, and back taxes.

Ultimately, with Chapter 7, you will have to give up some or all of your assets — which is not the case with Chapter 13. However, the end result is that your debts can be discharged, which more or less provides you with a clean financial slate. Of course, any type of bankruptcy is going to have an impact on your credit score; you can expect both Chapter 7 and Chapter 13 bankruptcy to remain on your credit report for seven to ten years.

When Is Chapter 7 Bankruptcy the Right Choice?

Generally, Chapter 7 bankruptcy is the best choice when the majority of your debt comes in the form of credit card debt, medical bills, and other unsecured loans. Furthermore, if your total debt is more than about 40% of your annual income and you cannot feasibly pay off your outstanding debt within the next five years using payment plans, then Chapter 7 is likely to be your best option.

What You Need to Know About Filing

The best way to ensure that Chapter 7 is the right choice for you and to get the help you need with filing is to work with an experienced bankruptcy attorney. Contact Clark & Washington Attorneys and Counselors at Law today to schedule your free consultation.

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