Chapter 7

Quick Overview of Chapter 7 Bankruptcy

Chapter 7 of the United States Bankruptcy is commonly known as a liquidating bankruptcy or just plain “bankruptcy”. This webpage explores the benefits and downsides of filing a Chapter 7, including what types of debts you can usually discharge (get rid of) and other frequently asked questions.

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Should you File Chapter 7 Bankruptcy?

The goal of most any personal bankruptcy is to discharge your debts and allow you a fresh start on your finances. In other words, once your discharge is granted, you no longer need to repay the debts that were incurred before you filed your bankruptcy. Your creditors are entitled to share in the proceeds obtained from the liquidation of your non-exempt assets. Under Chapter 7, the amount your creditors will get is fixed by the value of your non-exempt assets. Certain debts are non-dischargeable in Chapter 7.

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What are Some Disadvantages of Chapter 7 Bankruptcy

You are only able to receive a discharge after six years have passed since the commencement of the last case in which you received a discharge. Thus, you should not file bankruptcy, under Chapter 7, if you think that you will need the option of doing it again within the next six (6) years. If you are a corporation, you must stop operating your business immediately upon the filing of the Chapter 7 petition. Only under extraordinary circumstances will the Trustee operate the business. Another disadvantage of filing Chapter 7 comes when you are behind on your car or a mortgage. If you are behind on your payments on a car or a mortgage and your file a Chapter 7 you will have to immediately bring your loan “current”.

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Why Do You Need an Attorney?

Some paralegal services charge a minimal fee to prepare and file the necessary paperwork to file a bankruptcy. While in some cases this may not be a major problem, it has been my personal experience that the risk is simply not worth it. Much of what goes into the bankruptcy petition comes from the insightful and probing questioning from a qualified bankruptcy attorney. Paralegals and other “bankruptcy” petition preparers are strictly prohibited from practicing law and, therefore, cannot give legal advice or ask the necessary question to make sure you are completing your paperwork fully and completely. Even if they were legally allowed to do so, they are not able to adequately assess the laws surrounding exemptions and to determine what your best options are.

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