While Chapter 7 bankruptcy has its detractors, the reality is that it’s not all bad. In fact, there are many benefits to choosing Chapter 7 bankruptcy over other forms, like Chapters 13 or 11.
Chapter 7 bankruptcy, which is also known as liquidation bankruptcy, helps you get out of debt by liquidating your assets. When you have nothing left to sell or give the courts, the remainder of your debts are forgiven. There are a few exceptions, but in general, any unsecured debts can be eliminated through this kind of bankruptcy.
Will you lose everything in bankruptcy?
Although it’s called liquidation bankruptcy, you won’t necessarily lose everything. In fact, the purpose of bankruptcy isn’t to make you start over from scratch, because doing that would put many people in difficult situations where they’d quickly acquire new debts.
When you file for bankruptcy, you’ll likely lose items like excessive clothing items or secondary vehicles, but the court would allow you to keep clothing needed for work, a primary vehicle and even a certain value of property. That means that bankruptcy won’t necessarily mean losing your home or vehicle, so you can still continue to work and better your life.
What should you expect during the bankruptcy process?
Expect questions about your assets and debts. You should have documentation of each debt and asset’s value for the court.
You should also prepare to go through credit counseling, even if it’s not a requirement in your case. Credit counseling is a good idea, because it helps you learn how to better manage your money in the future to avoid another bankruptcy. Remember, there is a period of time before you can file for bankruptcy again, so you need to get your finances in order to prevent overwhelming debt.
You’ll also have to go to a “341” meeting, which is a meeting in which you talk about your assets, liabilities, income and expenses. When the trustee has all the necessary information from you, he or she can present it to the bankruptcy court and help resolve your bankruptcy case. Once your bankruptcy case is finalized, any remaining debts are generally discharged unless they’re unable to be discharged. A few common debts that remain following a bankruptcy include student loans, back taxes and child support. These are a few of the exceptions that won’t be allowed to be discharged in most bankruptcies.