The content is accurate at the time of publication and is subject to change.
From the two types of bankruptcy available, people should know what the most appropriate type to apply for is. Sometimes, when we think of bankruptcy, the only thing that is important to us would be the discharge of our debt. We rarely think about how it can affect our lives afterwards. So before we file for bankruptcy we should know how each chapter works and how it will affect our lives afterwards.
What bankruptcy chapter affects my credit history in the long run?
If we file for bankruptcy, whatever chapter it is, it will greatly affect our credit history. A bankruptcy filed or status stays reported on one`s credit report for 7 to 10 years. Having this record on your credit history poses a problem when you try to get new loans or credit. Some lenders consider it as a negative standing since you are not able to pay for your debt before so they are very careful on approving loans with people who have a low credit score because of the bankruptcy.
How does a chapter 7 bankruptcy work?
A chapter 7 bankruptcy basically uses your properties as payments to your creditors. This is called liquidation of assets. Non-exempt assets are the ones that can be converted to cash and are considered as payment to your creditors. Exempt assets are those that cannot be used as payment. This information about what are considered as non-exempt and exempt are given by the state that you are in. Each state has a different standard to categorizing these things.
So, after you have submitted your assets, the bankruptcy court will issue payments to your lenders. If the amount of your assets does not equate to the total amount of your debt, you don`t have to worry about it because anything remaining will be discharged as per court order under this chapter. After all of this is settled, you will really have to start all over again since you don`t have much properties anymore. So better think about it before filing.
How will I know if I can take advantage of Chapter 7?
You will need to undergo a Means Test. This test is mandated because some people abuse bankruptcy as means to avoid paying their debt. This test will determine if a debtor has no means to pay their debt or has means but refuse to pay for what is owed. This will evaluate your income and your family size. If your income is not sufficient, then you can qualify but if not, you are denied from Chapter 7 thus giving you Chapter 13 instead.