Filing for Bankruptcy under Chapter 7 provides the opportunity of wiping out most unsecured debt and allowing the debtor to have a fresh start. It can be recognized as “liquidation” bankruptcy and is the most common and simplest type of bankruptcy filing in the U.S. According to the American Bankruptcy Institute (ABI) 63% of bankruptcy cases filed in 2019 were Chapter 7. However, determining whether or not filing Chapter 7 bankruptcy is the right choice for you depends on several factors.
What are the signs that you should file for Chapter 7?
There are some very tell-tale signs that you are drowning in debt. Simply being unable to pay a bill one every so often, usually isn’t cause for concern for most people. However, when your financial situation keeps you up at night, you may want to consider contacting a Chapter 7 Bankruptcy lawyer.
There are five signs that will indicate that you should file for Chapter 7 may be the right solution for you:
- Your debt is more than half your annual income
- It will take you about five years or more to pay off your debt
- You have little to no disposable income
- Your debt is creating stress that is affecting other parts of your life, including relationships or other areas
- Your monthly income is below the median level in your state
There are also significant mental effects that debt can take on you. If this is the case, you need a compassionate bankruptcy lawyer to help you navigate the bankruptcy process.
Should I file for bankruptcy?
If you have more than $10,000 of debt and find it hard to keep up with payments and making ends meet every month, filing right now may be an option to look into. Other considerations include if you are worried that you may be sued or at risk of some form of garnishment.
If you find yourself in any of these situations it is best advised to not file for Chapter 7 bankruptcy right now:
- You filed chapter 7 less than 8 years ago
- You have less than $10,000 in debt
- Most of your debt cannot be discharged
- You have property you don’t want the bank to sell
- Depending on the type of debt, if social security is your only source of income
On the other hand, some people wait to file for Chapter 7 bankruptcy. Some of the common scenarios that may play out and may advise you to not file are:
- If you’ve been using your credit card to do big purchases for the past 6 months
- You have paid or transferred property to a family member or friend
- If are suing or plan to sue someone
Similarly, those that owe money to their landlord and don’t plan on moving should get caught up with rent. The same advice goes for car loans that one may want to affirm.
What does filing involve?
Everyone that decides to file for bankruptcy under Chapter 7 must pass the “means test”. This formula will help determine if you qualify for Chapter 7 bankruptcy. The reason for this test is to examine financial records, including income, expenses, secure and unsecured debt and determine if the disposable income is below the median income of your state.
Filing for Chapter 7: What do you lose and what can you keep?
Something to keep in mind is that the trustee can’t take all your assets. These types of assets are known as “exempt property”. This is to prevent someone from being stripped from everything that is needed to live and is allowed to have a fresh start.
Exemptions can be federal or state statutes and can be applied to certain types of property. The federal government provides a list of exemptions, and many states have adopted their lists. Some forms of property that are protected include personal items, cars, furniture, and similar items. Unfortunately, luxurious items will not be included in the list. A large percentage of filers don’t have non-exempt property, meaning that they can keep most of their belongings.
As mentioned earlier, timing plays an important role when filing for bankruptcy. The Bankruptcy Code limits how many times a person can get a bankruptcy discharge. If you plan on filing for chapter 7, you lose the ability to file another claim for another 8 years.
How will filing affect my credit?
Contrary to belief, filing for bankruptcy will not ruin your credit forever. The detriment of filing for a bankruptcy petition is that it will most likely drop your credit by a few points, but this will only be for a short period. Filing for bankruptcy will be on someone’s record for up to 10 years from the date the case was filed. If someone is looking to file for bankruptcy, their credit might’ve already been in bad shape. However, you are being granted a fresh start and can lead to a better credit score when filing for bankruptcy. By managing financially, your credit score can be improved within a year of getting a bankruptcy discharge.
How The Carlson Law Firm can help
Filing for bankruptcy under Chapter 7 depends on your financial situation and what other debt-relief options are available to an individual. Timing plays an important aspect and is recommended to a credit counseling course is a great start to learning more about debt relief options available to you.
The Carlson Law Firm handles bankruptcy filings in Killeen, Fort Hood, Temple and Waco. Call us today at 800-359-5690 to schedule your free consultation.
However, because filing for bankruptcy is a big decision, it is important to know what you can gain and lose when filing either type of bankruptcy. Contact us today to schedule a free consultation and speak to one of bankruptcy attorneys.