For those who have amassed credit card debt, medical expenses and other unsecured debt, Chapter 7 bankruptcy might be the most worthwhile option. Still, there are common mistakes that can hinder the plan and it is important to avoid them.
Know all the facts about Chapter 7
Known as a liquidation bankruptcy, this is the easiest and fastest solution to their money woes. Unlike a Chapter 13 where there is a payment plan in place and people who own a home, an automobile and other properties they want to keep can do so, Chapter 7 discharges and clears the debt. In many instances, the person can keep properties that are below a certain value.
There are, however, reasons why a Chapter 7 might be denied. For example, it could be something as simple as failing to take the required financial management course that must be completed before the discharge. The debtor could have failed to follow orders given by the bankruptcy court or be accused of fraud.
A common misstep that people might make is amassing substantial debt shortly before filing. The court will look at the debt and when it was accrued. If it seems like it came about as part of fraudulent activity, then the discharge could be denied. Creditors or the trustee can object to the discharge. This would lead to a lawsuit that in bankruptcy is called an adversary proceeding.
In short, the debtor simply needs to know and follow the law when filing. That includes providing all the records and information as requested; not making major purchases shortly before the filing; completing the financial management course; and adhering to any court orders that are issued.
Chapter 7 can improve one’s financial situation
Dealing with overwhelming debt can negatively impact every aspect of a person’s life. They often feel as if there is no way out and they will be forced to live with the endless letters, phone calls, emails and messages about late or missed payments. Some might think bankruptcy is not a viable alternative or that they will not qualify. These are common misconceptions.
With Chapter 7, unsecured debts can be cleared relatively easily. A key is knowing the rules and following them. When thinking about strategies to address debt, it is useful to understand how Chapter 7 works, what to do and what not to do and how to move forward with a case.
