Chapter 7 bankruptcy, a “liquidation” bankruptcy, is a legal process allowing individuals to discharge most of their unsecured debt. While many people are familiar with the basic concepts of Chapter 7 Business Bankruptcy, some lesser-known facts can be important to understand.
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Eligibility
It is important to note that not everyone qualifies for Chapter 7 bankruptcy. To be eligible, individuals must pass a means test comparing their income to the state median income. If their income is above the median, they may not qualify for Chapter 7 and may have to file for Chapter 13 bankruptcy instead.
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Discouragement of debt
While Chapter 7 can discharge most unsecured debt, certain types of debt cannot be discharged. These include most taxes, student loans, and certain fines and penalties. Additionally, if the individual has many non-exempt assets, these assets may be sold to pay off creditors.
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Loss of assets
Filing for Chapter 7 bankruptcy does not necessarily mean an individual will lose all their assets. The law allows for exemptions, certain types of assets protected from being sold to pay off creditors. These exemptions vary by state but generally include assets such as a primary residence, personal property, and retirement accounts.
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Credit score
It is essential to note that filing for Chapter 7 bankruptcy can impact one’s credit score. While the discharge of debt can improve an individual’s financial situation, it can also lower their credit score in the short term. However, as the individual begins to rebuild their credit, their score will typically improve.
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Legal impact
It is vital to note that filing for Chapter 7 bankruptcy does not necessarily mean the individual will be released from all legal actions. Creditors can still file a lawsuit against the debtor after the bankruptcy is filed, but the debtor can then use the automatic stay to stop the lawsuit.
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Release of cosigned debt
Filing for Chapter 7 bankruptcy does not necessarily mean the individual will be released from all co-signed debts. If the debtor co-signed the loan, the creditor could still go after the co-signer for the debt. It is vital for individuals to consult with a bankruptcy attorney to understand their options.
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Release from potential debts
You must note that filing for Chapter 7 bankruptcy does not mean the individual will be released from all future debts. The bankruptcy discharge only eliminates the individual’s personal liability for debts that existed when filing. Any debts incurred after the bankruptcy filing are still the individual’s responsibility.
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Impact on life
Filing for Chapter 7 bankruptcy can impact a person’s professional life. Certain professions, such as those in the financial industry, may have restrictions on individuals who have filed for bankruptcy. It is crucial for individuals to consult with their employer or professional organization to understand any potential impact on their career.
