Does it seem impossible to pay your bills each month? Does it seem like you’ll never get out of debt? Do you find that you have no money left after paying all your bills? If you are in this position right now, you might need to consider declaring bankruptcy. If you are interested in learning more about what declaring bankruptcy entails, here are three things you should know.
What Chapter 7 Bankruptcy Is
There are two main types of bankruptcy, Chapter 7 and Chapter 13. Both types offer advantages; however, choosing Chapter 7 is the best solution if most of the debts you have are for credit cards. Chapter 7 bankruptcy is the branch of bankruptcy that does not require repayment of debts, as long as the debts qualify.
Credit card debt qualifies for discharge in Chapter 7 cases and so do other types of debt. These include medical bills, utility bills, personal loans and deficiencies from repossessions. There are others too. Debts that may not qualify include past-due taxes, child support and alimony.
The Requirements for Filing Under Chapter 7
You will need to meet certain requirements if you use Chapter 7 bankruptcy for debt relief. The first requirement depends on your income. Your income is compared to the average income in the state where you live. If your income is less than the average in your state, you’ll most likely qualify. A means test will help you know if you meet this requirement. A means test is often one of the first steps lawyers complete when meeting with clients who are considering bankruptcy.
The second main requirement involves viewing your debts to find out if Chapter 7 would help you or not. To find this out, you should bring a record of every debt you have to show to your lawyer. If most of your debts qualify for discharge, filing for Chapter 7 could help you out tremendously. If most debts do not qualify, your lawyer can help you find another solution for your debt problems.
The Benefits of Chapter 7
Filing for bankruptcy has pros and cons, but Chapter 7 offers a lot of great benefits you will not find with other debt-relief options. Here are the main benefits:
- No more harassment from creditors – When the bankruptcy court receives your bankruptcy documents, they will issue an automatic stay. An automatic stay is an order that prohibits creditors from contacting you. This will end all the letters, emails, and phone calls from your creditors.
- No more debt payments – After filing, you can stop paying any debts that qualify for discharge. This will instantly free up a lot of your income, which may help you pay off any debts that do not qualify for discharge.
- You may be able to keep some assets – While there are times when the court requires people to surrender certain assets they own, this isn’t usually the case in most Chapter 7 cases. Most people are able to keep the things they own, including their cars and home.
- You may qualify for new lines of credit within a few years – Bankruptcy will not fall off your credit report for 10 years from the date of discharge, but you might still be able to get loans and even lines of credit. Most people are able to get loans and credit cards just a few years after filing.
Bankruptcy has drawbacks as well, and this is important to know before you file; however, the benefits can outweigh the drawbacks in some dire situations.
If you are tired of feeling overwhelmed by debt, bankruptcy may be an appropriate solution. To find out if you qualify for Chapter 7, schedule an appointment with SW Smyth LLP.