While Chapter 13 bankruptcy is an opportunity that is made widely available to most American adults who are struggling with debt, the option of filing for Chapter 7 bankruptcy is reserved for far fewer potential filers. Because qualifying unsecured debts can be discharged via a Chapter 7 filing without a requirement to pay back one’s creditors, the government reserves this opportunity for low-wage earners. If a debt-laden individual meets the means test eligibility criteria for Chapter 7 bankruptcy, they may find that this debt relief option has the potential to free them from significant financial burdens.

Primary Benefits 

Once a Chapter 7 filing is received by the courts, an automatic stay is put into effect immediately. As a result of this legal protection, most creditors are prohibited from demanding repayment or pursuing debt-related legal action while a filer’s case remains unresolved.

After a Chapter 7 case has been navigated successfully, a filer’s eligible unsecured debt is discharged by the court. This means that a filer’s credit card balances, medical bills, personal loans, and other qualifying accounts will never again be that filer’s responsibility to repay.

 Bankruptcy is an essential financial protection that allows eligible individuals to get out from under the thumb of crushing, unmanageable debt. While declaring bankruptcy does have a significant effect on your credit score, it can also make a world of difference in your quality of life and allow you to start fresh. However, many people who file for Chapter 7 bankruptcy may be surprised to learn that a bankruptcy court could decide not to discharge a case, even after the debtor meets with the trustee and her creditors. To learn more about why a Chapter 7 bankruptcy might not be discharged, read on. 

Reasons a Chapter 7 Bankruptcy May Be Denied

When someone files for bankruptcy, she must provide the bankruptcy court with a full and honest accounting of her financial situation. This includes the debtor’s creditors and the amount and nature of each debt, the debtor’s income and its source, the debtor’s property, and the debtor and her family's living expenses. 

A crucial part of the bankruptcy process is the meeting of creditors. During the meeting, the trustee assigned to a case will ask questions of the debtor to probe the accuracy of the debtor’s statements and her understanding of the bankruptcy process. The debtor’s creditors will then have an opportunity to speak to the debtor and the trustee. 

When debt has become an unmanageable burden, it is important to be proactive in seeking a solution. All too often, individuals think that if they work harder or spend a little less that unmanageable debt will suddenly become manageable. Unfortunately, due to influences like interest and unexpected life events, it is rare that simply “digging a little deeper” solves debt that has spiraled out of control. This is one of the primary reasons why the U.S. Bankruptcy Code exists. The opportunity to file for bankruptcy serves as an acknowledgment that overwhelming debt can be resolved with a little help along the way.

If you are thinking about filing for personal bankruptcy, you have two primary options to choose from. Chapter 7 bankruptcy is available to low-income filers. Chapter 13 bankruptcy is better suited for those who can make manageable monthly debt payments on their outstanding balances. Which option is right for you? That is an excellent question.

Picking and Choosing

If you qualify for Chapter 7 bankruptcy relief, this may be your best option because you can obtain a discharge of your eligible unsecured debts without first having to pay your creditors anything.

Debts can cause a great deal of stress and financial difficulty for a family, but bankruptcy can offer a way out of these situations. However, anyone who is considering bankruptcy may wonder how different types of debts will be handled and whether filing for bankruptcy could result in the loss of his or her property. The elimination of secured debts, such as a home mortgage or auto loan, will typically lead the lender to pursue foreclosure or repossess the collateral used to secure the debts. To avoid this, a debtor may need to determine how they will be able to become current on his or her payments while eliminating other debts.

For debtors with secured debts, Chapter 13 bankruptcy is often the preferred option. This type of bankruptcy will require a person to make ongoing payments toward a repayment plan for several years, and if he or she can continue making payments toward secured debts, he or she will be able to retain ownership of his or her property. Missed payments, late fees, and other amounts owed to a lender may be included in a repayment plan, which will allow a person to become current on these loans. Chapter 13 offers some other benefits as well that may reduce the amount of a person’s debts and help him or her maintain financial stability in the future.

Debt is an issue that affects people throughout the United States, and there are many reasons that a person may struggle to repay the debts he or she owes. For example, a person may experience financial difficulties due to being laid off from his or her job, or a family member may suffer from a serious illness that leads to unexpected medical expenses. While most people will do everything they can to make ongoing payments toward their debts, this can sometimes become impossible. If a person misses payments or defaults on a loan, creditors may begin taking action to collect the amounts that are owed. 

People in these situations may be considering bankruptcy, which will allow them to eliminate certain types of debts and regain financial stability. In many cases, a person will pursue a Chapter 7 bankruptcy, since this will allow debts to be discharged fairly quickly. However, this type of bankruptcy may require a person to turn over certain assets that he or she owns. Those who are considering this option will need to understand what types of assets may be liquidated during bankruptcy and what exemptions may apply.