The word bankruptcy seems scary at first but sometimes it’s the only viable option to clean up unpayable debt and recover your life. Chapter 7 Bankruptcy is the most common Chapters seen in cases throughout the United States. This is when a court-appointed trustee collects any assets you might have, and liquidates them to pay back creditors as much as possible. So, what exactly happens once you’ve filed and been approved for Chapter 7 Bankruptcy?
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During the initial process leading up to your approval, you will have met with your trustee to show and discuss bank statements, credit card invoices, proof of income, as well as other documents related to loans and finances. He or she will also want proof of any assets you own and may have them evaluated and confiscated. Not every item you own will be liquidated through this process. The underlying reason that Chapter 7 Bankruptcy exists is to give you a fresh start. Therefore, the court will undoubtedly leave you with enough items to live but will remove anything that isn’t proven to be a necessity and can return some money to creditors.
Does Chapter 7 Bankruptcy Remove All Debt?
Most of your debt will be forgiven through this process but not all debt is the same. The court won’t dissolve child support, alimony, fines for legal violations, housing fees for cooperative buildings, student loans, debts caused by destruction of person or property, or debts accrued through federal taxes.
There are exceptions that may help you dissolve debt that usually isn’t forgiven. Both student loan debt and tax debt can be discharged if certain criteria are met. You must have filed your most recent tax return, you can’t have committed any type of income tax fraud, and the debt you have accrued can’t be from within the last three years. There are some other points that can impact this decision, such as an assessment or audit by the IRS within the year you are applying.
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Cleaning Up Your Credit
Chapter 7 Bankruptcy follows you for 10 years and can still impact your finances following that decade of clean credit. While you are recovering from filing, you should begin the process of cleaning up your credit rating. This can prove difficult because credit card companies and banks aren’t likely to approve you for any kind of loan. Instead of applying for traditional cards, approach a bank about a secured credit card. This allows you to deposit an amount, of which you can borrow 50% to 100%.
If you can achieve any sort of loan or financial account in your name, keep your payments up to date. Always pay more than the minimum and pay on time. If you use a credit card in the future, try to use it only when you know you can pay the entire purchase back within that month. This will help you to avoid accrued interest and restore some of your credit score.
For more information on Chapter 7 Bankruptcy and legal aid, contact Groce & DeArmon for a consultation.