What is Chapter 7?
(for a very comprehensive explanation, see my Ultimate Guide to Chapter 7)
Chapter 7 bankruptcy is the most frequently filed bankruptcy.
More people file Chapter 7 bankruptcy than chapter 13 bankruptcy.
Chapter 7 bankruptcy wipes out most debt, and allows you to keep your house, your cars, and effectively reorganize your finances very quickly.
For a comprehensive view of chapter 7 bankruptcy, see my ultimate guide.
When coupled with my unique credit recovery program, chapter 7 bankruptcy is often the fastest route from “drowning in debt´ to getting a full financial recovery with a good credit score.
Most people qualify for Chapter 7 if they pass the means test.
See my ultimate guide for more information about the means test.
Chapter 7 bankruptcy is often referred to as a “liquidation bankruptcy.”
Although technically true, as a practical matter almost no one loses any property when they file Chapter 7 bankruptcy.
This is because our property is protected, up to certain limits, by laws called exemptions.
When you file Chapter 7 bankruptcy, you will not go in front of a judge, you will not see the inside of a courtroom. There is only a brief meeting with the bankruptcy trustee. I’ll be there with you. NO STRESS.
Your chapter 7 bankruptcy will be open for only about five months from the time it is filed from to the time you get a discharge.
After your chapter 7 bankruptcy is discharged, you will not owe most or all of your unsecured debts, and if you choose to, you can keep your house and cars in most cases.
About your credit…
The reason most people think that chapter 7 bankruptcy ruins credit is because they are never given any instructions on what to do after bankruptcy to improve their credit.
The reason for this is that bankruptcy attorneys are not taught this in law school.
Credit recovery is not part of bankruptcy law.
However, it is very important and I can think of no situation where it’s more important than after you file a chapter 7 bankruptcy.
Also, it is important to understand that although you may qualify for Chapter 7, you might be leaving a lot of money on the table if you file Chapter 7.
This is because chapter 13 offers many advantages over chapter 7 which, in many cases, would allow you to achieve a more complete financial recovery and still recover your credit as well.
I regularly see people who go to low-cost bankruptcy lawyers who tell me they were advised to file Chapter 7.
They are amazed when I tell them that although they qualify for Chapter 7 they can actually help themselves much more by filing a chapter 13.
The chapter 13 will allow you to strip off some second mortgages. The “cut-rate” bankruptcy attorney never told them this.
The chapter 13 bankruptcy allows you to get rid of your upside down car and get another one before filing and cram the interest rate down to six and half percent.
A gentleman came to see me after seeing a “low cost” bankruptcy attorney.
The “cut-rate” bankruptcy attorney told him to reaffirm his car and continue making the high payments at the high interest rate for the upside down car. Thus he would lose thousands of dollars and forgo the opportunity to get better transportation.
I explained to him that, although he could do this, it was not, in my opinion, his best choice. He has two better options in chapter 13. He could either “cram down” that car, and pay only it’s value, not what he owed, or, he could replace it altogether, and cram down the interest rate on the replacement car to 6.5%.
He like his car, and had maintained it well. He decided to keep it, and I was able to cut his car payment in half.
Saved him thousands of dollars over the life of the loan.
I see this over and over.
Cut rate bankruptcy attorneys often shy away from chapter 13 analysis because of the more substantial involvement of the attorney that is required by chapter 13 in the considerable extra time that it takes to do a thorough evaluation of the chapter 13 options.
So, although chapter 7 is the most appropriate chapter for some people, it’s always better to know all your options and have your chapter 13 options evaluated along with your chapter 7 options before making any final decision about which chapter is best for you.