Chapter 7...Good idea or not?

Question

What can you tell me about it? I am thinking of filing. I have alot of debt that I can't pay due to a tragedy in my life. Please help if you can. Thanks!

Answer 1

This would be the worst option in my book. I would try consumer credit counseling before I would file for bankruptcy. Credit counslers will try and lower your payments to a manageble level so you can pay down your debts. Belive me bankruptcy is not the answer

Answer 2

Chapter 7 is a liquidation of some assets, not all.  It gets rid of all of your unsecured debt and any secured debt on property that you are not keeping.

It's considered a "fresh start." In fact, that exact phrase is used in the Bankruptcy code. People are always trying to make it sound scary, because if it weren't more people would do it.

Visit a bankruptcy attorney. They usually offer free consultations and gave give you the best idea of what direction you need to go in. Don't worry about being pressured into it. A good Bankruptcy attorney these days has more than enough business.

I've always heard that if you can't pay a minimum of 6% of your balance in addition to the minimum payment on your credit card, you probably need to file. This is not a hard and fast rule, but if you do the math I'm sure you'll see the hole you dig yourself when you can't and aren't paying that amount.

You don't lose everything, please don't believe that myth.

The thing you really need to consider is whether you are ready. If you file a 7 today, you can't file another for 8 more years (not 7 more years as BLC said above). Are you ready to clean up your finances and keep them clean?

As for your tragedy, that is one of the things that most often leads people to file, medical problems, unemployment, divorce, the economy, an unexpected death, etc.  

Getting to the point where you feel it may be necessary isn't fun, but you will feel a lot of relief if you get through the process.

The amount of debt you have and whether you should file is relative to your income.  If you've got $15,000 of unsecured debt (medical bills, credit cards) but make $70,000 a year, you probably shouldn't file.  But if you've got $10,000 of debt, you can barely make the minimum payments on your debt and make less than $30,000 a year, filing is probably a good option.

You'll still have to find another way to come up with the money you need to live and the money to file bankruptcy.

You may want to consider contacting you local legal aid to find out if you qualify for their help in filing.  That way you will only have to pay court costs.

Try not to stress.  Just make a few calls and talk to an expert, not someone here who thinks they know.

Most bankruptcy attorneys will give you a free consultation and during that time they will give you advice on whether you can or should file a bankruptcy and whether it should be a 7 or 13.

{edit}  Also, please don't listen to the person who said you can't apply for any credit for 10 years (at least I think that's what they said, who knows with the weird puncuation).  It does stay on your credit report for 7-10 years, but it's impact lessens as does ever negative on your credit report.

Both Chapter 13 and Chapter 7 require credit counseling, but this is not stressful.  It can be done online.  

And you don't have to pass all of the tests, just one to file a Chapter 7.  If you are under the median income then you qualify.  If you aren't then you can qualify by passing the means test.  

This is basically a test that shows whether or not you can repay your creditors at least $100 a month for 60 months after you pay all of your basic necessities (these vary per state).

I know people who file a 7 and have a 600 credit rating in 2 years and a 700+ credit rating in 4.  That just comes with learning from your mistakes and becoming more responsible with credit.

It's a good idea to go to a credit counselor before or after you speak with an attorney, but beware of debt negotiators or other scammers who will take your money and leave you with lawsuits.

There are reputable ones out there, just hard to find.

Just remember, it's better to make a decision based on all the available knowledge.  That's why it's best to go to an attorney for a free consultation, even if you decide against bankruptcy at least you have all the information.

Good luck.

Answer 3

Hello Cat,

              Your legal right to file under Chapter 7 of the U.S. Bankruptcy Code is precious. You can complete it only once every seven years.

               As a general rule, you might not want to  consider this unless you owe greater than five times your annual income and have at least $100,000 in unsecured debt.

              A measure to making your decision are the factors you see pushing you to file. Are you being bothered by creditors calls? They will either give-up when you let them know you will not be paying them or they file a judgment against you. If you have no property of consequence, this is useless, empty and expensive. What care do you have if you have judgments recorded against you? It makes no life impact.

        If you earn high income, your wages may be attached. This is not good! Consider paying this creditor off with payments and offer as little as 25% with your first approach. You can always go up to 100% if this is a particular nuisance.

         If you earn low wages and a creditor seeks attachment, you are entitled to claim necessary basic living income exemption from their claim. This should be close to all your available income and I have seen individuals facing six figure judgments with little salary being ordered to pay $8.00 to $20.00 per pay check. This hurts but places you in a position to settle with the creditor for a nominal amount.

            It is rare where you actually have to file bankruptcy. It is a viable option. Today, a 100% bankruptcy discharge is unattainable. I would wait and see if the next Congress doesn't  reestablish the old law wherein debtors  received a full second chance.

              Relax knowing there no longer is "debtor's prison".

              My heart goes out to you for your tragedy. It can and does happen to anyone and everyone. No need to compound your grief by filing bankruptcy at this very minute.

               Time heals all wounds and slowly reduces collection activity pressure. DO NOT BE INTIMIDATED BY COLLECTORS. Understand they are lying SOB's who make promises to debtors they have no intent upon keeping as a means to support themselves and their families. Do not be rude unless they are first rude to you. They prey upon those who can be intimidated easily. If you are not one of those people they will soon let you alone. AND DO NOT BE FOOLED BY THREATS TO HAVE YOU ARRESTED OR TAKEN TO JAIL FOR FRAUD OR  OTHER CHARGES. Police and Courts will only send them back to follow civil (non-criminal remedies)

       Good Luck. Take a deep breath. You are fine. You owe money....so what!

        Remember you have a Constitutional Right to file bankruptcy. It is as much a right as freedom of speech, freedom of faith and freedom to assemble. Let your annoying creditors understand that all their efforts will bring will be exercise of your bankruptcy rights after they have expended a few more thousand dollars in collection and legal time and effort.  

Answer 4

I will not advise it. BK is considered the debt management option of last resort because the results are long-lasting and far-reaching.

Answer 5

Try to talk to a credit counselor first for options. Maybe you don't need to file bankruptcy and they can help you with a debt workout plan to get you debt free.

Or if you really considering filing bankruptcy,  it will be on your credit for 10 years and you can not apply for any credit for a while.and you can not file bankruptcy again for another 8 years. With the new laws now, for chapter 7, you have to take a credit counseling course, pass the means test (state median, income) and include ALL debts you owe. You can not tell them you want to keep a certain debt.