What is Chapter 7 Bankruptcy
A chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in chapter 13 bankruptcy. Instead, the bankruptcy trustee gathers and sells the debtor’s nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code. Part of the debtor’s property may be subject to liens and mortgages that pledge the property to other creditors. In addition, the Bankruptcy Code will allow the debtor to keep certain “exempt” property; but a trustee will liquidate the debtor’s remaining assets. Accordingly, potential debtors should realize that the filing of a petition under chapter 7 may result in the loss of property.
What are the Advantages to Filing Chapter 7 Bankruptcy?
- The process usually only takes 4-5 months compared to 3-5 years for Chapter 13.
- In most cases, all of your unsecured creditors are “wiped out”. In Chapter 13 you pay a percentage of your unsecured debt.
- Most Chapter 7 filers never attend a bankruptcy court hearing – only a 341 trustee hearing.
- Most Chapter 7 filers never lose and property or assets.
What are the Disadvantages of Filing Chapter 7 Bankruptcy?
- Chapter 7 offers the filer no help if they are behind on their mortgage or car loan and want to retain the property. The filers should contemplate Chapter 13 in this case.
- There is always a chance a filer could lose assets in a Chapter 7. Carefully review with your bankruptcy attorney all your assets before filing.
- Chapter 13 has some advantages in dealing with IRS secured tax liens and second mortgages that Chapter 7 doesn’t offer.