Bankruptcy Chapter 7  

Is filing Chapter 7 the Best Debt
Solution for Me? 

Bankruptcy Chapter 7 Liquidation...

As an attorney, I sometimes get calls from friends asking advice about how to handle their financial problems. Unfortunately, many times I get the call "after" they've already filed for bankruptcy relief.

For example, our friend Diane filed for bankruptcy protection to avoid being evicted. She only needed a one week reprieve for enough time to get a new apartment.

Unfortunately, she went to a bankruptcy attorney who gave her bad advice. Filing bankruptcy in her situation was like using a sledge hammer to kill a mosquito.

You probably know someone who's filed for bankruptcy to stop a foreclosure or just to get a fresh start.

The point is, bankruptcy may or may not be the best debt solution for your financial situation.

You may already know there are alternatives to bankruptcy Chapter 7 Liquidation:

  1. Debt Management Service
  2. Credit Counseling Service
  3. Debt Settlement Service
  4. Debt Consolidation
  5. Develop your own Debt Elimination Plan

So, it's really important that you first evaluate your financial situationyourself and determine which debt solution is best for you.

But before you decide, lets discuss what bankruptcy Chapter 7 Liquidation is all about and how it works:

What does Bankruptcy "Chapter 7" mean?

First of all, you should know that "Chapter 7" refers to that particular chapter of the U.S. Bankruptcy Code. But there are several other chapters of the Bankruptcy Code as well.

You are probably most familiar with Chapter 7 Liquidation, Chapter 11, Business Reorganization and Chapter 13, Individual Debt Adjustment.

What does it mean to discharge a debt?

The U.S. Bankruptcy Code allows for discharge of your debts based upon certain rules. To discharge your debts means you are no longer liable for the debts. In other words, once they are discharged, you no longer have to pay them.

The basic goal of the bankruptcy code is to help you to get a fresh start.

How does Bankruptcy Chapter 7 Liquidation work?

Basically, in a Chapter 7 liquidation bankruptcy case, you file a petition listing all of your financial information. The judge then appoints a trustee to sell your assets to give as much of the cash to your unsecured creditors as possible.

However, there are some exceptions that allow you to keep certain assets. For example, you may be allowed to keep your home  and "re-affirm" your car loan.

In other words, you may be allowed to keep your home and car by signing up to continue the payments on these loans instead of discharging them.

In most cases, no assets actually get sold. Usually, under chapter 7 you never even have to see the judge. Most of the process involves filing documents with the court. A few months later you get a discharge of the debts you are allowed to cancel.

Can anyone file for bankruptcy Chapter 7 Liquidation relief?

Well, before 2005 anyone could file for chapter 7 relief. But in 2005 congress changed the bankruptcy code to require a "means test" to determine if you qualify for chapter 7 relief.

Now, if your monthly income is above your state's median income you have to meet a means test to prove that you are not abusing the bankruptcy process.

For a detailed explanation of the means test and more information on bankruptcy Chapter 7 Liquidation, go to the U.S. Bankruptcy Courts website at

Also, there is a book entitled How to File for Chapter 7 Bankruptcy by Stephen Elias, Albin Renauer, and Robin Leonard that explains step by step how to complete the necessary bankruptcy forms and file a petition with the court.

What are the pros and cons of filing for bankruptcy Chapter 7 Liquidation relief?

The Pros of Chapter 7 relief...

The upside is you get a fresh start. But if you don't change how you manage your money you could rack up more debt and get back into the same financial situation. That's why ,going forward, it's so important to get control of your finances and make a plan for spending your money.

The Cons of chapter 7 relief...

There are certain debts that you may not be allowed to discharge. Under many circumstances, your student loans and tax liabilities may not be dischargable.

Obviously, your credit scores will take a hit as well. But you can usually quickly re-establish new credit. There are some lendors who will grant you new credit immediately after a bankruptcy.

But don't fall into the trap of getting out of debt simply to get back into debt. Once you get out of debt, get control of your finances and make a plan for spending your money.

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