Chapter 7 Bankruptcy

What is a Chapter 7 Bankruptcy?

A Chapter 7 bankruptcy lets the debtor discharge (or wipe out) all of his or her debts. Chapter 7 Bankruptcy is also called liquidation bankruptcy.

What happens when a Chapter 7 Bankruptcy is filed?

When a chapter 7 bankruptcy is filed, the trustee liquidates or sells all of your non-exempt assets and uses the cash to pay your creditors. (Most creditors under chapter 7 bankruptcy only get a small percentage, if that, of the total amount of the debt.) All debts are discharged, or forgiven, and completely wiped off the slate.

Is filing a Chapter 7 Bankruptcy a good idea?

Filing a Chapter 7 Bankruptcy may sound like a pretty good deal, but it is not quite that simple. When a debtor goes into a Chapter 7 bankruptcy, the trustee takes possession (legally) of all of the debtors possessions that are not exempt under state or federal law. For some people, a chapter 13 bankruptcy may be more appropriate. Check out our comparison of Chapter 13 and Chapter 7 bankruptcy in the Chapter 7 Bankruptcy vs Chapter 13 Bankruptcy section. Bear in mind, though, there are times when you may want to consider filing for Chapter 13 bankruptcy instead of Chapter 7, as suggested in the article Chapter 7 and chapter 13 bankruptcy, which is best for me?.

What debts cannot be wiped out by filing Chapter 7 Bankruptcy?

Filing chapter 7 bankruptcy may sound like a good deal, but not all debts can be discharged in a bankruptcy. Taxes, child support, alimony, student loans, as well as some other specialized items can never be discharged in bankruptcy. You will be responsible for repaying these types of debt no matter what.

How often can I file Chapter 7 Bankruptcy?

You may file for a Chapter 7 bankruptcy every eight years and you should be aware that bankruptcy courts in some areas are cracking down on what they see as consumer misuse of bankruptcies. Some Chapter 7 bankruptcies have been denied when it appears the debtor piled up debt without any plans to be able to pay it off.

How long does a Chapter 7 Bankruptcy stay on the credit report?

Chapter 7 bankruptcies appear on credit reports for ten years after the discharge. A Chapter 7 bankruptcy can be a lifesaver for people who are overcome with debt and have no hope of reaching settlements or being able to make negotiated payments to creditors. It can also hurt your credit for a long time.