In a Chapter 7 Bankruptcy, a debtor’s nonexempt assets are gathered and sold, the proceeds of which are used to pay off creditors. While filing for bankruptcy is often associated with stigma, it shouldn’t be. Chapter 7 Bankruptcy is a lawful financial remedy designed to help debtors gain control of their finances and achieve a fresh start.
In his latest article, KingSpry’s Bankruptcy Law Attorney, Eric J. Filer, Esq., focuses on Chapter 7 Bankruptcy, explaining how the process works and why people file, and debunking some of the most common bankruptcy myths.
Chapter 7 Bankruptcy
In a typical bankruptcy proceeding, the debtor will either liquidate their assets or reorganize their debts. The focus of today’s article is Chapter 7 Bankruptcy, also known as “liquidation bankruptcy.”
Chapter 7 Bankruptcy begins with the filing of a petition, along with various forms detailing the debtor’s assets, debts, income, and expenditures. From there, the liquidation process begins. The bankruptcy court will appoint a trustee who is responsible for gathering and selling the debtor’s nonexempt assets, the proceeds of which are used to pay off creditors in accordance with the Bankruptcy Code.
Consequently, filing for Chapter 7 may result in the loss of property, including cash, bank accounts, stocks, bonds, and other investments. However, the Bankruptcy Code allows the debtor to retain certain exempt property, such as their reasonably necessary clothing and household goods, retirement accounts, life insurance policies, and more.
Why People File
The primary purpose of bankruptcy is to discharge debts and give the debtor a fresh start. Chapter 7 Bankruptcy gives debtors a fresh start by legally discharging most of their debt. Most people who file for Chapter 7 do so because they cannot make regular, monthly payments towards their debts. This may be because of job loss, a medical problem, or divorce.
For more information regarding the intersection of bankruptcy and divorce, see our previous article about preserving assets in a divorce.
Debunking Common Myths
Despite the various, legitimate reasons an individual may have for filing, bankruptcy is often associated with certain stigma. Much of this stigma, however, can be debunked.
Myth #1: “Only financially irresponsible people file for bankruptcy.” In reality, most people file for Chapter 7 relief because of hardships outside of their control, including job loss, medical emergency, and divorce.
Myth #2: “You will lose everything you own.” In reality, the Bankruptcy Code recognizes certain exemptions to prevent this very outcome. In most cases, a debtor’s home, motor vehicle, reasonably necessary household goods, jewelry, tools of trade, retirement accounts, pension, and life insurance policies cannot be liquidated during the Chapter 7 Bankruptcy process.
Myth #3: “Bankruptcy ruins your credit forever.” In reality, bankruptcy will impact a filer’s credit, but not indefinitely. While bankruptcy may remain on a filer’s credit report for up to ten (10) years, many filers can start re-building credit immediately, and some have their credit score increase as result of the debt discharge.
Myth #4: “Filing is difficult and complicated.” In reality, experienced bankruptcy attorneys can help individuals and businesses find the best path toward financial relief and a fresh start.
Myth #5: “If I file for bankruptcy, I will lose my job.” In reality, Federal anti-discrimination law prohibits private and government employers from terminating, demoting, or reducing one’s salary solely based on an employee’s status of filing for bankruptcy.
Achieving a Fresh Start
Bankruptcy is a legal tool—not a moral failure. Chapter 7 Bankruptcy is a legitimate financial remedy designed to help individuals recover from their debts and achieve a fresh start.
At KingSpry, our experienced Bankruptcy Law Practice Group helps individuals and businesses find the best path toward financial relief and a fresh start. If you have questions, contact our bankruptcy team for personalized guidance you can count on.
This article is a publication of KingSpry’s Bankruptcy Law Practice Group. This article is meant to be informational and does not constitute legal advice.
