In a chapter 7 personal bankruptcy an individual and their spouse can eliminate completely unsecured debt which includes credit card debt, personal loans, and deficiency judgments on repossessed vehicles etc. The benefit in filing the Chapter 7 bankruptcy is that the debt is eliminated forever and there is no future liability. The Chapter 7 bankruptcy gives people the opportunity to completely start over.
In a Chapter 7 however, you must keep paying on any secured loan when the individual wishes to keep the property. For example, if you want to keep your car, you must also keep making the payment and stay current on your payment, or if you want to keep your home you must make the full payment and stay current on your payment. In some cases the lender may be willing to modify your loan down to the market value of the vehicle or home. There is no guarantee however, and in many cases the lender will not reduce the amount owed at all.
There are income requirements for qualifying for a Chapter 7 bankruptcy. Below are the income guidelines. There are exceptions and depending upon your debts and other expenses you may still qualify.
1 earner $53,000 per year
2 People $65,000
3 People $$75,000
4 People 80,000
If your income is higher than the amounts listed, we may have to perform a complete "Means Test." The Means Test is a formula used to determine if you may still qualify for the Chapter 7. Basically it is a debt to income calculation. We charge $150.00 for the means test.
Effect on Credit:
The Chapter 7 Bankruptcy stays on your credit for 10 years. You can file for a Chapter 7 Bankruptcy every 8 years and is measured from the date of filing. While there is no exact measurement for the number of points off your FICA score, you can expect a significant point drop. You can rebuild your credit within a couple of years if you don't have new negative marks. Things that help rebuild your credit are: making your car payment on time, your house payment, and on credit cards etc. Living at the same address for a long period of time and working at the same job can help as well.
Many people feel guilty for filing for bankruptcy. It should be understood that our office does not pass judgment on our clients. We handle hundreds of cases on a yearly basis and we are aware of the state of the economy and in particular the real estate market and the effect it has had on so many industries and families.
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