When does Filing Chapter 7 Bankruptcy make sense?

Bankruptcy is not something one considers on a normal day. It is usually the last resort for solving debt problems when a person’s finances are in jeopardy. Bankruptcy has various consequences, which you should be aware of before you decide to file your petition. There are several different kinds of bankruptcies, which are distinguished by chapters. Chapter 7 is the most popular bankruptcy, followed by Chapter 13; both chapters have different criteria and serve separate purposes. Most applicants, who don’t qualify for Chapter 7, go for Chapter 13 instead.

Bankruptcy Attorney in Columbia, MD, can confirm your eligibility, as well as determine if this is the best course of action with respect to your economic situation. If you are experiencing most of the following hardships, filing for Chapter 7 bankruptcy is possibly the right choice.

1. You have massive unsecured Debt

The common misconception is that Chapter 7 erases all your debt, which is indeed false. This bankruptcy can only discharge debt that is unsecured, i.e. any loan acquired against collateral cannot be removed. Unsecured debt primarily consists of credit card, utility, and medical bills; hence, if most of your debt falls under those categories, Chapter 7 shall prove to be a huge relief. Bear in mind that you cannot get out of paying government taxes, mortgage payments, student loans, and spousal/child support.

2. Your assets are negligible

Chapter 7 is a liquidation bankruptcy, which means that the bankruptcy trustee will sell out your non-exempt property to compensate creditors. Therefore, if you are concerned about keeping all your assets, you should opt for a reorganizational bankruptcy, such as Chapter 13. If you don’t own any valuable assets you are afraid to lose, Chapter 7 is good for you.

3. Your income is very low

Individuals with very high incomes do not qualify for Chapter 7. This bankruptcy is meant to relieve the financial burdens of families having a gross income below the state’s median. Your low income could be the result of a recent job loss, pay cut, or reduced working capacity due to a disability/illness. If you are under a lot of debt and there is no way to pay it back in the next 5-10 years, filing Chapter 7 could be the only reasonable solution.

4. Debt collectors are harassing you

You may have signed up for a few loans in the past, but now lagging behind in payments because of a fluctuating income, poor financial management, or an emergency that triggered unexpected expenses. The situation gets out of hand when creditors turn to aggressive methods to get back what you owe them. Under these circumstances, bankruptcy will grant you legal protection from debt collectors, so they can no longer harass or contact you for payment.

5. You want to prevent foreclosure or eviction

Many people on the brink of losing their home file bankruptcy to obtain an automatic stay. This court notice is a temporary solution to prevent foreclosure or eviction, which lasts for the duration of bankruptcy (3-6 months for Chapter 7). However, you do get some extra time to make up for outstanding payments or make arrangements for accommodation elsewhere.

6. Your Credit Score is poor

Everyone knows that bankruptcy is bad for credit, though it doesn’t matter if it’s already suffering because of crippling debt and no progress on paying it off. Scores below 600 are generally poor and thereby bankruptcy will have a negligible impact. If you stick to timely payment of bills and sound financial decisions following the bankruptcy, you will be able to improve your score drastically in a matter of time.

7. You have depleted your savings

If you have been struggling to make ends meet, you have probably used up all your savings by now. Since you have no more funding to depend on, and you still need money to afford necessities, Chapter 7 bankruptcy can help lighten the burden and grant you a fresh start.