Is Chapter 7 Right for You?

Chapter 7 bankruptcy is not the right answer for everyone struggling with debt. Chapter 7 bankruptcy differs from Chapter 13 bankruptcy in one main way; the person or corporation filing for Chapter 7 bankruptcy does not have to provide the court with a plan for the repayment of the debt. However, chapter 7 bankruptcy code does require for the trustee of the bankruptcy to gather the nonexempt assets of the person holding the debt and sell these items in order to raise money for the repaying of the debtor’s debts. This process must occur in cooperation with the Bankruptcy Code of the United States. The individual or the corporation with the debt will be allowed to keep some of their property if it passes bankruptcy chapter 7 exemptions from the process. Also, if an individual or a corporation files for Chapter 7 bankruptcy they could be subject to the loss of their property.

Alternatives to Chapter 7

There are alternatives to filing for Chapter 7 business bankruptcy that are especially useful for people that are involved in partnerships, corporations, and sole proprietorships. One of the alternatives is to file for Chapter 11 bankruptcy, which helps businesses avoid liquidation. Chapter 11 bankruptcy allows businesses to seek an adjustment of their debts or seek a comprehensive reorganization of their debts. An adjustment of a debt can include extending the time period for repaying the amount of the debt or having the amount of the debt reduced to a lower number. An alternative for individuals preparing to file Chapter 7 bankruptcy is filing for Chapter 13 bankruptcy. Chapter 13 allows individuals with debt to keep their home or other property without the worry of having it liquidated. This can be done by allowing the debtor to catch up on past due payments via a payment plan for the debt.

Chapter 7 Eligibility

Any individual, corporation, partnership or other business entity can file for Chapter 7 bankruptcy. Any individual or business cannot file for Chapter 7 bankruptcy if the debtor fails to appear before the courts or comply with court orders within 180 days of filing another bankruptcy petition. An individual or a business can also be eligible for Chapter 7 bankruptcy if they have received counseling from an approved credit-counseling agency 180 days prior to filing the petition with the government.

Disadvantages of Chapter 7

The disadvantages of filing for Chapter 7 bankruptcy include: the risk of losing every piece of property the debtor owns, not all of the debts can be discharged by the government, the co-signers of the debtor’s home loan might wind up paying for the debtor’s loans, the debtor can only file for Chapter 7 bankruptcy once in every six years, it will be incredibly difficult to obtain a new loan, the debtor’s credit score will be destroyed, withdrawing a Chapter 7 claim is almost impossible to do, and buying a home will be nearly impossible after filing for Chapter 7.

Effect on Credit

The effect on an individual’s credit is quite damaging when filing for Chapter 7 bankruptcy. A person’s credit score will be destroyed by filing for this form of bankruptcy, making it incredibly difficult for the debtor to acquire a new loan or a home mortgage for two or more years. Chapter 7 bankruptcy is the worst mark for an individual to have on their credit report these days. Chapter 7 bankruptcy will not affect a person’s application for student loans or student grants because it is illegal to discriminate against student loan applicants based on bankruptcy issues.

Consult a Bankruptcy Lawyer for Help

Individuals or businesses preparing to file for Chapter 7 bankruptcy should consult a bankruptcy lawyer prior to making any decisions. A bankruptcy lawyer will be able to answer all questions pertaining to the process of filing for bankruptcy as well as finding alternatives to bankruptcy and providing the debtor with expert counsel regarding their case.