What is Chapter 7 bankruptcy?
Chapter 7 bankruptcy is the most common chapter of bankruptcy filed and also the chapter most people think of when they talk about bankruptcy. It is considered a consumer bankruptcy as the vast majority of filers are individuals rather than businesses or other such entities. This type of bankruptcy is designed to wipe away virtually all debts that a person incurs from credit card debts to old tax liabilities. Even debts related to a car or house are wiped away or “discharged” once the case has been processed to completion. Generally a person must prove that they do not have the resources, i.e. income, to pay back the debts they have incurred. This either happens as a result of low or no wages from employment, or because they owe substantial amounts to creditors such as student loans or taxes.
It is common for people who file under Chapter 7 to have no personal or real property that is in danger of being taken by the case trustee. In the cases in which a debtor has property that is not protected by the exemptions, a thorough analysis must be performed by an experienced attorney to determine if the risk outweighs the reward of filing for bankruptcy. The most typical cases result in a very smooth process of only one hearing in front of the trustee, standard paperwork processing by the clerk, debtor counsel and the trustee. The case is generally closed within 6 months as a result of mandatory time periods that must lapse for the case to be administered properly.
In short, Chapter 7 bankruptcy wipes the slate clean and typically results in complete debt recovery and allows an individual to start fresh and rebuild their credit. Credit recovery varies from person to person and must be undertaken carefully. Seek advice from an experienced attorney to understand how credit works as most notions of credit and credit scores is incorrect and often opposite to what will actually help a person rebuild their credit.
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