- Chapter 7 bankruptcy occurs when the debtor cannot afford to be on a debt repayment program, such as Chapter 13 bankruptcy. Instead, his assets are liquidated in exchange for a discharge of his debts. Both Chapter 7 and Chapter 13 bankruptcy may end foreclosures, repossessions, garnishments and utility shut offs; however, they do not generally cover childcare, alimony, fines, taxes and student loans.
- To qualify for Chapter 7 bankruptcy, you must complete credit counseling with a government-approved credit counseling organization within six months prior to filing. The National Foundation for Credit Counseling website contains information on reputable, government-approved credit counseling organizations by location. In addition, those filing for Chapter 7 must pass a "means test" to verify that their income falls below the state median levels.
- Your credit counselor will help you determine whether Chapter 7 bankruptcy is the appropriate course of action for your financial situation. Those who have filed for Chapter 7 bankruptcy in the past must wait eight years before filing again. Additionally, filing fees cost several hundred dollars, and that is not inclusive of attorney's fees, so you must also have money saved to file for Chapter 7.
- Bankruptcy stays on your credit report for up to 10 years. You will have to rebuild your credit from scratch, and may have difficulty obtaining new credit. In addition, it may be difficult to get life insurance, rent a home and even to secure a job that requires a credit check. Before filing for bankruptcy, you must carefully consider other options your credit counselor presents to you.
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