Is Chapter 7 Right for Me?
Chapter 7 has helped millions of Americans start a new life free of debt. But each of us has a unique financial situation, and Chapter 7 is not right for everyone. To qualify, you'll have to pass a means test — an assessment added to the bankruptcy process as part of the 2005 Bankruptcy Reform Act. Though a "test" might sound intimidating, it's really just a simple look at your income. Most of our clients considering bankruptcy have no problem passing the test. And at DebtStoppers, if you qualify, we’ll even advance the filing fee so you can get out of debt immediately for $0 down.
Wondering whether Chapter 7 can help you? If you meet the following criteria, you're probably a good candidate:
- You have little or no income. For instance, you earn less than the average income for your region, you lost your job or you are unable to work.
- You live paycheck to paycheck, with little money left over from paying the bills each month.
- You have lots of unsecured debt, like credit card debt or medical expenses.
- You have few large assets. Maybe you rent or have little equity in your home.
Still not sure? No problem — that's where our attorneys come in! At DebtStoppers, we can identify the best way to lift your debt burden.
Will I lose all of my possessions?
Unlike Chapter 13 bankruptcy, which usually requires a payment plan, Chapter 7 often allows filers to have their unsecured debts discharged completely. When you file for Chapter 7, your non-exempt assets are turned over to a bankruptcy trustee, who liquidates them and uses the cash to pay off creditors. Once creditors are paid, your debts are discharged and you're no longer liable.
But that doesn't mean that you'll lose all of your stuff! It's a myth that Chapter 7 is license for the repo man to come knocking on your door. In fact, most DebtStoppers clients don't lose anything at all! What's the secret? Each state has its own long list of exemptions, and there are even more federal exemptions. Debtors are usually able to keep most items considered "necessary."
Let's look at the options for your car, the biggest asset for most who do not own homes
If you've paid for your car in full — meaning it's not tied to any debts — it will likely be exempted as a necessary item, as you need it to commute, drive the kids to school, etc. Keep in mind that the amount of vehicle equity eligible for exemption varies by state. If that sounds confusing, don’t worry. Your attorney can help you sort out the details.
If your car is security for a debt, however, things get a little tricky. Under these circumstances, you have three options regarding your car when you file for Chapter 7.
You can redeem your loan for the current value of your car upfront. Let's say you owe $8,000 on your car loan, but because we all know how quickly cars depreciate, the worth of your vehicle is determined to be $4,000. If you can pay your creditor $4,000, U.S. bankruptcy code will allow for the remaining $4,000 of your debt to be discharged. A DebtStoppers attorney can advise you if you're interested in redeeming your loan.
You can reaffirm your loan by agreeing to continue paying the balance throughout your bankruptcy process. You MUST make payments if you choose to reaffirm; otherwise, your car could be repossessed and sold and you would be liable for the difference between the amount left on your loan and the price the creditors receive for your car. Before making a decision to reaffirm a loan, speak with your bankruptcy attorneys.
If you've fallen behind on payments or your outstanding loan is more than the value of your car, your best bet might be to surrender it to creditors in exchange for discharging the debt.
If you want to keep your car but aren't able to negotiate a reaffirmation or provide the lump sum needed to redeem it, or if you're a homeowner attempting to save your house from foreclosure — Chapter 13 could be a better solution for you. Your best bet is to discuss your individual financial situation with a knowledgeable attorney.
Chapter 13 can stop repossession of your vehicle, even if you've fallen behind on payments. Contact one of our attorneys today to find out how Chapter 13 can help you stop foreclosure or repossession in its tracks.
Remember, bankruptcy is a guaranteed way to eliminate credit card debt, halt foreclosure and stop creditor action. Why not find out today if bankruptcy is the right plan for you? Talk to a DebtStoppers bankruptcy attorney at 800-440-7235 or go online to sign up for a free, one-on-one debt analysis!
How much does it cost?
Bankruptcy courts require a fee to file. It currently costs $335 to file for Chapter 7 in Illinois and Georgia. These fees are subject to change, but you can always check out the most current fees here.
Though not guaranteed, waivers and other exceptions are sometimes available depending on your particular situation.
There is also a smaller conversion fee (should you need to change a Chapter 13 bankruptcy to a Chapter 7) and the possibility of amendment fees (in case you have to change documentation after the initial filing), in addition to attorney fees.
Remember, if you have any questions about the cost of bankruptcy, DebtStoppers can answer them at absolutely no cost. You can also check out our blog, watch informative videos on our website or sign up for an hour-long session with one of our attorneys — all for free. The cost of filing for bankruptcy is typically dwarfed by the savings you receive when you're excused from credit card debt, medical bills, personal loans and other forms of debt!
Is there anyone who should NOT file for Chapter 7?
Chapter 7 has been life-changing for countless Americans. It's a chance to wipe the financial slate clean of credit card debt, medical expenses and other debt burdens and start anew. That said, no two financial situations are the same. If you fall into one of the following categories, Chapter 13 bankruptcy might be better than Chapter 7 for you. An expert bankruptcy attorney is your best source for finding your ideal debt solution.
Four reasons NOT to file for Chapter 7
Your income is higher than average
Before you can file for Chapter 7, bankruptcy law dictates that you must pass a means test. This test compares your income to the median earnings in your area. If it turns out that you earn significantly more than your region's median, chances are you won't qualify. There's still good news, however. Chapter 13 is always an option. In fact, if you earn a steady income and have large assets such as a house you want to protect, Chapter 13 bankruptcy is probably better suited to your needs. Talk to a bankruptcy attorney to find out for sure.
You own certain possessions you don't want to lose
Most states allow you to keep possessions thought of as necessary, such as your furniture, clothes and items needed for work or school. Check your state's exemptions to find out what is allowed. Though large assets such as houses can also be thought of as necessities, things get complicated depending on the amount of equity you have in them. If you're a homeowner and you're looking to keep your house, you might be better off filing for Chapter 13. It's a guaranteed way to stop foreclosure. Your best bet is to talk to a professional bankruptcy lawyer.
You're looking to pick and choose debts to discharge
Chapter 7 can save you from unsecured debts, but it's not a ticket out of every obligation. You are still liable for non-dischargeable debts, including taxes, child support, alimony and student loans. Nor can you discharge secured debts such as your mortgage or car loan. If your biggest concern is saving your house from foreclosure or keeping your car, your best bet might be Chapter 13.
You're counting on money, such as an inheritance
Any money you receive — such as an inheritance, gift or lawsuit settlement — could be fair game for creditors. A professional bankruptcy attorney knows how to apply your state's exemptions to your assets to determine whether a windfall could be at risk.
Bankruptcy is a complex process that depends largely on your own unique situation. There are many things that could affect your case, such as jointly owned property and filing expenses. DebtStoppers bankruptcy attorneys know your financial situation is as unique as your thumbprint. We take into account your particular needs to develop a plan that works!
Talk to DebtStoppers' experienced attorneys to see if Chapter 7 is right for you
Not sure what path will lead you out of debt? Why not talk with one of our bankruptcy attorneys? Call us at 800-440-7235 or contact our Chicago office online. We can evaluate your individual financial situation to find your best solution. We'll answer your questions free of charge.
Call us today at 800-440-7235 or fill out a free personal debt analysis.