3 ways Chapter 7 bankruptcy provides relief to debtors

3 ways Chapter 7 bankruptcy provides relief to debtors

| Dec 3, 2020 | Chapter 7

Misconceptions plague bankruptcy, spawning fear in the hearts of many who might otherwise benefit from it. Among these fallacies are that if you file for bankruptcy, your credit will be forever ruined and you will lose everything you have. The reality is that bankruptcy is actually a smart financial move in certain situations. 

Chapter 7 and Chapter 13 bankruptcy are most commonly used by consumers, with Chapter 7 available to those below the income threshold (eligibility determined by the Means Test). There are things Chapter 7 bankruptcy does that help individuals struggling with everyday debt. 

1. Protects you from creditors

When you file for Chapter 7 bankruptcy, a temporary halt is automatically placed on existing debts. This shields you from the hounding of bill collectors. Eviction, foreclosure, utilities shutoff, wage garnishment and property repossession are also stopped. 

2. Helps clear unsecured debts

The court takes control of your property and appoints a trustee to oversee the sale of it. This individual then uses the proceeds to pay off unsecured debts like credit card debt, personal loans and medical bills. Note that much of your property is exempt from seizing for sale. In this manner, debt may end up eliminated within months. Some areas like child support and alimony are not included in Chapter 7 bankruptcy. 

3. Grants you a clean slate

At the end of the process period, generally three to six months, the court issues a discharge that erases any remaining debt that falls under the Chapter 7 umbrella. This means you can start anew without the weight of debts accrued from daily living. 

Chapter 7 bankruptcy is not an absolute guarantee of financial freedom. However, it is capable of lightening your debt load, giving you a chance to get beyond merely scraping by.