What is Chapter 7 Bankruptcy?

You’re probably wondering why you need to know about Chapter 7 bankruptcy when your business is doing great or growing. This blog will explain why you need to know about bankruptcy, how it works and the benefits it can have to your business.

Understanding Chapter 7 Bankruptcy

For individuals, Chapter 7 bankruptcy is the most common form of bankruptcy. When a person files for Chapter 7 bankruptcy, all of that person’s assets are liquidated or sold in order to repay as much of the person’s debts as possible. 

Some people might be able to keep some of their assets, such as a home or a car, but most of a person’s belongings will be sold in order to repay the person’s debts.

After a person’s assets have been liquidated, the person’s remaining debts are discharged, meaning that the person no longer has to repay them. This is why Chapter 7 bankruptcy is sometimes called a “fresh start” – it gives people a chance to start over without the burden of their old debts.

There are some limitations to who can file for Chapter 7 bankruptcy. For example, you must pass a “means test” in order to qualify. 

This test looks at your income and your expenses in order to see if you have enough money left over each month to repay some of your debts.

If you do not pass the means test, you might still be able to file for Chapter 7 bankruptcy if you can show that repaying your debts would cause you undue hardship.

Who should file for Chapter 7?

The decision of whether or not to file for Chapter 7 bankruptcy protection depends on a variety of factors specific to each individual case. 

However, in general, those who should consider Chapter 7 bankruptcy protection include those who are struggling to keep up with payments on their debts, those who have a large amount of debt compared to their income, and those who have few assets they could use to pay off their debts.

What are the drawbacks of chapter 7?

Individuals who file for Chapter 7 bankruptcy protection will see their debts discharged, or forgiven, in a relatively short period of time. 

While this can be a godsend for those struggling under the weight of overwhelming debt, Chapter 7 bankruptcy also comes with a few drawbacks.

Perhaps the biggest downside of Chapter 7 bankruptcy is that it can have a negative impact on a person’s credit score. A bankruptcy filing will stay on a person’s credit report for 10 years, and can make it difficult – if not impossible – to get a loan or line of credit.

Another drawback of Chapter 7 bankruptcy is that it can be difficult to rebuild one’s credit after filing. A person who has filed for bankruptcy will likely have to wait several years before they are considered for a loan or line of credit.

Finally, Chapter 7 bankruptcy can be costly. There are typically attorney fees and court costs associated with filing for bankruptcy protection.

How to file for Chapter 7 bankruptcy

If you decide to file for Chapter 7 bankruptcy, you should find an attorney who specializes in bankruptcy law. They will help you determine whether or not Chapter 7 is the best option for you.

After meeting with an attorney, gather all of your financial information. This includes bank statements, credit card statements, mortgage documents, and any other relevant information.

Complete the official bankruptcy forms. This can be done on your own, or with the help of an attorney.

The final step is to attend a meeting with your bankruptcy trustee. This meeting will include a creditors’ meeting, in which your creditors will be able to ask you questions about your bankruptcy.

If you follow these steps, filing for Chapter 7 bankruptcy should be a relatively easy process. Keep in mind that there are some exceptions, and that not everyone will qualify for Chapter 7 bankruptcy.