The bankruptcy process can be riddled with questions and is often overwhelming for consumers. While the process intends to be a helpful resource, many people find it stressful. However, this doesn't have to be the case. Consumers are always advised to seek counsel from a qualified bankruptcy attorney before filing for bankruptcy, this is especially true for anyone considering Chapter 7. The reason is that there are additional considerations that go with the Chapter 7 process, most of which should be reviewed before filing in order to maximize the success of the case.
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Qualifying For Chapter 7
One of the tricky aspects to filing for Chapter 7 is the qualification process. Bankruptcy laws are set up in such a way to encourage consumers to repay their debts to their fullest extent. In other words, if you can afford to repay your debts in some fashion, the bankruptcy process wants to help you achieve that goal. Therefore, the rules impose strict income requirements in order to qualify for Chapter 7. Specifically, a debtor's income must be less than the median income level of their state of filing. If their income is greater than the median income of the state, they would not qualify for Chapter 7 but may be able to seek Chapter 13 instead.
Debts And Assets
The Chapter 7 process appeals to many people who are looking for a total debt elimination. However, we know that this isn't always possible for people with certain income levels. The type of debt being carried also affects whether a Chapter 7 case will be successful or not. Secured debts, such as mortgages and car loans, are difficult to manage in Chapter 7 because of their ability to be liquidated by the creditor for non-payment. Unsecured debts, however, are easily managed in this type of filing as they do not hold any asset as collateral against the loan.
The main concern with asset protection in a Chapter 7 filing deals with the type of debt. Because secured debts hold the asset as collateral, they are not guaranteed to be protected. Unless the asset falls under exemption laws, the asset may not be able to be protected from creditors in a Chapter 7 case.
Credit Effects
Perhaps one of the most concerning issues debtors face is how the bankruptcy will be reflected on their credit report after the discharge. While neither type of bankruptcy damages your credit directly, but can actually improve it, there are still some considerations with future loans. Many lenders will consider a debtor more of a credit risk after a Chapter 7 case than a Chapter 13 case. This just means that debtors must work a little harder to prove their fiscal responsibility after coming out of a Chapter 7.
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