If you are in debt, you should know all the options. Knowing all the options is the first step in determining which option is the best solution for you and your family. Today we’ll run through the basics to discuss when Chapter 7 bankruptcy is the best option.
Is Chapter 7 Bankruptcy the Best Option for You?
During a Chapter 7 bankruptcy filing, most assets are liquidated to help pay down the filer’s debts. If you are worried about filing bankruptcy because you hold a significant amount in assets, you may want to consider other avenues of debt relief, such as Chapter 13 bankruptcy. In a Chapter 13 bankruptcy, liquidation of assets is not part of the process. However, if you have a lot of consumer or medical debt and not a lot of valuable assets, Chapter 7 bankruptcy could be exactly what you need. If you aren’t sure, discuss how bankruptcy exemptions would help you with an experienced bankruptcy attorney.
Certain Purchasing or Spending Behaviors Make Chapter 7 a Bad Idea:
There are certain situations that make filing Chapter 7 bankruptcy a bad idea because the bankruptcy court could interpret them as fraud. For example:
- Large credit purchases or cash advances in the months prior to filing
- Providing false information on a credit card application
- Purchase of luxury items ($500+)
- A sudden increase in spending prior to filing
Other Reasons to Avoid Filing Chapter 7 Bankruptcy:
Recent, Previous Bankruptcy Discharge: You are ineligible to file for Chapter 7 bankruptcy if you received a Chapter 7 bankruptcy discharge within the past 8 years or a Chapter 13 bankruptcy discharge within the past 6 years. There are situational exceptions that could make filing a second bankruptcy petition a good idea, but they are rare. Discuss the situation with a bankruptcy attorney if you feel a second bankruptcy filing is a good idea.
Your Previous Bankruptcy was Dismissed: You are ineligible to file Chapter 7 bankruptcy if you had a previous bankruptcy case dismissed within the last 180 days, had a case dismissed due to a violation of a court order, or if you requested a bankruptcy case dismissal after a creditor requested the court lift an automatic stay.
The Majority of Your Debts are Not Eligible for Discharge: Some debts are not eligible for discharge. If the majority of your debts are not eligible, filing Chapter 7 bankruptcy is probably not your best solution. Common types of debts that will survive a Chapter 7 bankruptcy include child support or spousal support payments, back taxes (less than 3 years past due), student loans, criminal fines or restitution, trust fund taxes, judgments for vehicular accidents related to drunk driving, etc. Other debts may be determined as ineligible if a creditor challenges that discharge due to malicious injury, breach of fiduciary duty, embezzlement, luxury item purchases, fraud, etc.
You Hold Valuable Property: Under Chapter 7 bankruptcy law, the court-appointed trustee will sell any non-exempt property to pay the creditors. If you hold a significant amount of valuable assets, Chapter 7 may not be a good idea. To avoid losing the property you would like to keep, consider filing for Chapter 13 bankruptcy instead. However, certain properties are exempt such as a certain amount of equity in a home or motor vehicle, jewelry (valued below a certain amount), life insurance up to a specified value, tools used for your profession or trade, public benefits, retirement accounts, etc. In some cases, a potential Chapter 7 filer will turn to Chapter 13 instead because the current equity they hold in their home exceeds the homestead exemption. If you have questions about bankruptcy exemptions or which assets you could lose during Chapter 7 bankruptcy, get in touch with a bankruptcy attorney as soon as possible.
We understand that financial struggle is complex, and we want to help. If you have questions about bankruptcy and how to obtain a Chapter 7 discharge, please don’t hesitate to contact Ken Rannick. You are in good hands with Kenneth C. Rannick P.C.