Does Chapter 7 erase all debt?
An individual receives a discharge for most of his or her debts in a chapter 7 bankruptcy case. A creditor may no longer initiate or continue any legal or other action against the debtor to collect a discharged debt. But not all of an individual's debts are discharged in chapter 7.
If you file a bankruptcy petition under Chapter 7, you'll note that not all debts are discharged once the bankruptcy process is complete. Generally, in a Chapter 7 proceeding, the following types of debts are not eliminated: Debts not listed at the start of the case (or debts for unlisted creditors), known as schedules.
No one loses all of their property when filing for bankruptcy. Find out if you can keep your house, car, and other assets in bankruptcy. Don't worry—you won't lose everything in bankruptcy. Most people can keep household furnishings, a retirement account, and some equity in a house and car in bankruptcy.
Filing for Chapter 7 bankruptcy eliminates credit card debt, medical bills and unsecured loans; however, there are some debts that cannot be discharged. Those debts include child support, spousal support obligations, student loans, judgments for damages resulting from drunk driving accidents, and most unpaid taxes.
A Chapter 7 bankruptcy will generally discharge unsecured debts, including credit card debt, unsecured personal loans, medical bills and payday loans. The court discharges all of these remaining eligible debts at the end of the bankruptcy process, generally about four to six months after you start.
Not All Debts Are Discharged
For some, there's just no escaping all of it. Certain debts will remain on your account when you file for Chapter 7 bankruptcy. You will still be responsible for alimony and child support.
Chapter 7 bankruptcy is a type of bankruptcy filing commonly referred to as liquidation because it involves selling the debtor's assets in bankruptcy. Assets, like real estate, vehicles, and business-related property, are included in a Chapter 7 filing.
“Chapter 7 applications get denied more often than people think,” Derek Jacques, of The Mitten Law Firm, in Michigan, said. “In my experience, about 15% don't even get approved. From there, they can be dismissed before the process is completed for a lot of reasons.”
What Is the Cheapest Type of Bankruptcy? Not only are the fees of Chapter 7 bankruptcy lower, but you also end up paying less to your creditors. While Chapter 7 only requires that you pay the value of your liquidated assets, a Chapter 13 bankruptcy could result in you paying far more over three to five years.
One of the cons of filing chapter 7 bankruptcy is that it will negatively affect your FICO score for 10 years. A Chapter 13 filing, because it involves partial repayment, remains on your record for seven years after receiving a Chapter 13 discharge or dismissal.
Can you live a normal life after bankruptcies?
What does life after bankruptcy look like? You'll have to endure hardships — from cash flow management to establishing good credit and rebuilding your credit profile — but it's possible to financially recover from bankruptcy and give yourself a fresh start.
During bankruptcy, it's important to distinguish between necessary expenses and luxurious purchases. While you are allowed to spend money on essential items such as housing, utilities, food, and transportation, extravagant expenses might be scrutinized by the bankruptcy court.
Depending upon where you live, you may be able to remain in your home for six months or more after your Chapter 7 bankruptcy has been finalized. Once your bankruptcy is discharged, you will need to find another place to live.
Under Chapter 7, you may lose the first tax refund that's due after discharge, or some of it, because it's a refund of money earned before discharge. If some of the refund is from income earned after filing for bankruptcy, you keep it.
Again, there's no minimum or maximum amount of unsecured debt required to file Chapter 7 bankruptcy. In fact, your amount of debt doesn't affect your eligibility at all. You can file as long as you pass the means test. One thing that does matter is when you incurred your unsecured debt.
In most Chapter 7 bankruptcy cases, nothing happens to the filer's bank account. As long as the money in your account is protected by an exemption, your bankruptcy filing won't affect it.
You'll lose property that you own that is not exempt from sale by the bankruptcy trustee. You may lose some of your luxury possessions. Most state exemptions allow you enough so that most things you own will be exempt from bankruptcy, sometimes allowing more coverage to keep your property than you need.
Bottom line. Filing for bankruptcy should be a last resort, but it can help you reset your credit and free up cash for savings. Chapter 7 requires a means test but will eliminate most of your debt, a few exceptions like student loans aside, and you may see a rebound in your credit score in just a few years.
You'll have a clean financial slate when it's over, but a Chapter 7 bankruptcy stays on your credit report for 10 years. It will not, however, appear on your spouse's credit report unless the bankruptcy is filed jointly. That's the good news.
- Lie under oath about your financial or property assets.
- Keep property that must be used to discharge your debts.
- Miss payments to certain creditors in order to keep your home.
Can I go on vacation after filing Chapter 7?
Another common question: “Can we take a vacation after we file bankruptcy – or is this and other lifestyle expenses now off-limits?” My answer about taking a vacation is similar to my answer about dining out. Yes, you and your family can take a vacation.
What Disqualifies You From Filing Chapter 7 and Receiving a Dischage? High-Earning Individuals Can't File for Chapter 7. You Previously Filed and Received a Bankruptcy Discharge. The Court Dismissed a Bankruptcy Within the Previous 180 Days.
Debt collectors cannot try to collect on debts that were discharged in bankruptcy. Also, if you file for bankruptcy, debt collectors are not allowed to continue collection activities while the bankruptcy case is pending in court. If a debt collector calls and you have filed for bankruptcy, tell the debt collector.
If the filer's current monthly income is equal to or below the state's median, the debtor can file for Chapter 7. But if the filer's income exceeds their state's median family income, the filer must pass the second part of the means test to qualify for Chapter 7.
The biggest difference between Chapter 7 and Chapter 13 is that Chapter 7 focuses on discharging (getting rid of) unsecured debt such as credit cards, personal loans and medical bills while Chapter 13 allows you to catch up on secured debts like your home or your car while also discharging unsecured debt.
