Many people choose Chapter 7 bankruptcy over Chapter 13 when they have the option. This is because it eliminates most of their medical debt and credit card debt. We will be discussing the benefits of Chapter 7 as well as the drawbacks of Chapter 13.
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Chapter 7 Bankruptcy: Advantages
We will discuss the many benefits of Chapter 7 bankruptcy. However, Chapter 7 bankruptcy is not for everyone. An income test (also known as the “means test”) must be met to qualify for Chapter 7. For some, the debt can be discharged in return for valuable assets that are not exempt. These assets are sold by a bankruptcy trustee to pay creditors. Chapter 7 can sometimes be called “liquidation” bankruptcy.
You should carefully weigh the pros and cons for each chapter 7 bankruptcy and Chapter 13 bankruptcy. Many bankruptcy attorneys offer free consultations to help you choose which bankruptcy case to file.
You get a “Fresh start”
Chapter 7 bankruptcy is designed to help you get a fresh start. You are exempted from any personal liability for certain debts that you have eliminated.
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Some types of debt, however, are not able to be discharged, such as student loans (unless the court rules differently), child support, alimony, and fraud-related debts.
After Chapter 7 bankruptcy, certain liens remain on property such as a lien on a mortgage, tax lien or mechanic’s lien.
You will keep future income
The bankruptcy estate does not include any property that you acquire or plan to acquire after filing Chapter 7.
These types of property that were acquired within the first 180 days of filing for Chapter 7 bankruptcy will be included in the bankruptcy estate.
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- Inherited property
- Property acquired as part of a settlement or divorce agreement
- Death benefits
- A life insurance policy proceeds
- There are no limits on the amount of debt you can carry
Chapter 7 bankruptcy rules don’t limit the amount you can have, unlike Chapter 13 bankruptcy. Chapter 13 prohibits you from filing for bankruptcy if your secured or unsecure debt exceeds the debt limit.
No debt repayment plan
Chapter 7 does not require you to repay debt under a court-approved repayment program, as opposed to Chapter 13 bankruptcy. After Chapter 7’s discharge, you are no longer responsible to repay the debt.
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Rapid Discharge of Debts
The typical discharge of debt can occur in three months. The court will issue a discharge or order 60 to 90 days after your bankruptcy filing. The bankruptcy court will close your case after the trustee has distributed your property to unsecured creditors.