What is Chapter 7 Bankruptcy?

The U.S. Bankruptcy code allows an individual (or couple, if married) debtor to file for protection under several chapters of the Bankruptcy code, including chapter 7.

A Chapter 7 Bankruptcy is frequently referred to as a ‘liquidation’; however that name is somewhat misleading. Although a debtors non-exempt assets can be sold to pay off creditors in a chapter 7 bankruptcy, the federal or state exemptions typically allow a debtor to protect most, if not all, of the debtors assets in a chapter 7 bankruptcy.

To file for a chapter 7 bankruptcy a debtor must qualify under the ‘means test’. The means test compares your income to that of other similar households in New Jersey. If you are at, or below, the median income for a house of your size you may file a Chapter 7 Bankruptcy.

If creditors have been harassing you, your paycheck is being garnished, or your lender is threatening to foreclose on your home you will see immediate relief when you file your petition for bankruptcy in the form of the automatic stay issued by the court. This order prevents creditors from initiating or continuing any attempts to collect on a debt.

Chapter 7 Bankruptcy is the simplest and quickest type of bankruptcy a debtor can file. From start to finish the average Chapter 7 Bankruptcy only takes about four months. At the end of the process, the court will discharge most of your debts meaning you are no longer legally obligated to pay them.

Life After Bankruptcy

If you are like most people one of your biggest concerns regarding bankruptcy is how it will impact your future. You may be under the misconception that you will never be able to purchase a home or vehicle after bankruptcy.

The reality is, that while filing for bankruptcy may negatively impact your credit score in the short run it will likely have a positive impact in the long run as long as you take steps to improve your rating post-bankruptcy. Simply eliminating debts that were creating your financial crisis will help by improving your debt to income ration immediately after the bankruptcy is discharged.