Chapter 7 Bankruptcy: Frequently Asked Questions

Progressing through the bankruptcy process can be confusing and overwhelming. In a Chapter 7 bankruptcy, your financial health is at stake – as well as your property. As a result, having access to the information you need is critical. In this article, you will find answers to several of the most frequently asked questions about the Chapter 7 bankruptcy process.

How is Chapter 7 different from Chapter 13?

Understanding the difference between Chapter 7 and Chapter 13 is central to making any decision about bankruptcy. In a Chapter 7 bankruptcy, the court provides a discharge of your debts in exchange for your non-exempt property. In other words, they take away your eligible debts, provided you let them also take your property. In a Chapter 13 bankruptcy, the court provides a repayment plan that enables you to better afford your debt payments. The repayment plan is timed, and when it comes to an end, remaining eligible debts can be discharged by the court.

What debts won’t be discharged in a Chapter 7?

As you may already know, not all of your debts will be discharged if you file a Chapter 7. There are certain debts that are considered “non-dischargeable,” and will remain even after you have fully completed the bankruptcy process. Some of the most common non-dischargeable debts include student loans, taxes, child support and alimony, government fines and court fees, DUI penalties, and debts previously associated with fraud.

Will I lose my home?

It depends. While it is certainly possible to keep your home in a Chapter 7 bankruptcy, it is not always the case. The most important consideration is equity, which equals the current value of the home minus costs of sale minus lien balances. If you have equity in your home, it will be hard to keep your home – the court can take your equity to pay off creditors. If you have no equity, on the other hand, you can keep your house provided you can continue making mortgage payments after the bankruptcy has been finalized.

What will become of my credit?

After the bankruptcy discharge, your credit will be negatively impacted. For 10 years from the discharge date, the bankruptcy judgment will appear on your credit report, visible to creditors and other interested parties. Your credit rating will also take a negative hit. However, rebuilding your credit after a Chapter 7 bankruptcy is definitely possible. You will have to prove that you are financially responsible and gradually improve your credit score. If you act responsibly and take the correct actions to rebuild your credit, you can eventually return to a healthy credit status.

I’m stuck. What should I do?

If and when you get stuck in the bankruptcy process, the most important thing to remember is that there are professional resources on your side. When you find yourself in need of help, consider contacting a bankruptcy lawyer or other professional with experience in Chapter 7 bankruptcy. A bankruptcy attorney will be able to guide you through the process and inform you of all of your legal options.