Chapter 7 bankruptcy is the most common type of bankruptcy in the United States. This form of bankruptcy is popular because it allows the filer to keep certain types of exempt property. It is often called a ‘straight bankruptcy’.
This type of bankruptcy is often the quickest, allowing individuals a way to get a fresh start, right away, usually within four months. The debtor will turn over the acceptable assets which are then sold, in order to pay the individual’s creditors.
Unfortunately, this has also become the most abused type of bankruptcy filing. In the past, there was no test for individuals who filed for bankruptcy, which was how it became so widely abused. Individuals faced very few consequences and walked away from their debt.
But now the U.S. Trustee and Congress have come up with a formal means test. This means that they will look at the filer’s income and family size in order to determine whether or not the individual has the means to pay back his creditors or not.
After filing Chapter 7, the bankruptcy will stay on an individual’s credit report for ten years. Creditors will stop calling, and spouses will not be affected if they did not sign for any of the debt incurred. If one has already filed for bankruptcy, he or she must wait eight years before filing again.
Those who file for bankruptcy this way will keep property that is not in excess of the exemptions allowed in their states. In addition, liens will survive, as will student loans, child support, spousal support, and any income tax less than three years old. Property taxes will also not be discharged.
Businesses can also file for this type of bankruptcy, if it is unable to pay its creditors. The business’s assets are then sold off and typically all employees lose their jobs.
The cost of filing Chapter 7 is typically around 300 dollars. Then you will need to add attorney’s fees, which can run from 1,000 to 2,000 dollars. This will range from state to state and attorney to attorney, however. Make sure to have all paperwork in order to keep attorney fees down.
You may also have to complete credit counseling, which can cost around 50 dollars. You may also be asked to complete a course in personal finance management, which will cost about 30 dollars.
Filing for bankruptcy is public record, but no one has to know, if you do not tell them. This is one way to get your life back on track if you are drowning in debt and being harassed by creditors. Even after bankruptcy filing, you will still be able to apply for new credit cards and lines of credit. It is not the end of the world. Quite the opposite, really, it is a blank page, a fresh start.
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