If your financial situation has spiraled out of control and creditors are calling you night and day, you’re probably getting desperate for a drastic solution. For many, the option that comes to mind is bankruptcy. If you’re considering bankruptcy, there are a few things you should know.
Chapter 7 doesn’t get rid of all debts.
Many people think of bankruptcy as an easy and quick way to get out of all debt. But it’s not always that straightforward. While Chapter 7 is the bankruptcy in which debts do get written off, there are some debts that are not dischargeable. They are:
- domestic support obligations, such as child support and alimony;
- student loans;
- secured debts, such as mortgage liens and car loans;
- some tax obligations;
- criminal fines, penalties, and restitution; and
- debts acquired because of fraud (creditors must prove that it was fraud).
Chapter 7 stays on your record for a while.
A Chapter 7 bankruptcy stays on your credit report for up to 10 years. This means it will be difficult for you to buy a house during that period of time. It also means that you may have a difficult time getting any type of loan—even a credit card. You may not be able to get a credit card for up to three years after your bankruptcy, and when you are able to get one, it will have a painfully high interest rate.
Chapter 7 doesn’t exempt you from paying for your house.
In Chapter 7, you can be released from personal liability for the mortgage; however, you will not be released from the lien. This means that, if you default on the mortgage, the bank can come and take your house away.
Chapter 7 may take away some of your property.
In a Chapter 7 bankruptcy, you are required to state all of your assets and debts. Your assets, especially luxury items and other unsecured, non-essential items (called nonexempt property), will be sold to pay back your creditors. This could include items like a second home, a boat, jewelry, or antiques. Only nonexempt property can be taken. All exempt property, including your car, clothing, home furnishings, tools for your business, retirement accounts, and equity in your home, can be kept. Fortunately, most Chapter 7 filers have mostly exempt property. However, if you’re concerned about losing treasured possessions, it’s imperative that you consult with a Chapter 7 bankruptcy attorney. He may be able to help you keep more of your assets.
A Chapter 7 bankruptcy can be the answer for a dire situation. However, it is not a one-size-fits-all solution. Consult a Chapter 7 bankruptcy attorney who can help you determine the best options for your situation.