Chapter 7 Bankruptcy

Chapter 7 bankruptcy is a common option for people to get a fresh financial start when it is no longer feasible to pay off their debts. It is filed to discharge many forms of debt such as credit cards, medical bills, and lines of credit. The pressure to file may come from a shrinking budget or rising monthly debt payments, or it may come a just one particularly large debt such as a deficiency judgment following a foreclosure. Chapter 7 is called "liquidation" as one who has significant assets would be required to sell them off to pay creditors (usually pennies on the dollar). However, most people who file Chapter 7 do not have significant assets and keep the modest assets that they do own.

The policy of bankruptcy law is to address debts which cannot reasonably be paid off within three to five years, and it is particularly appropriate when minimum debt payments do not leave enough money in the budget for rent, food, car payments, and other necessary expenses. It becomes even more important to consider this option when someone is unable to make payments and is threatened with a lawsuit which could result in a wage garnishment, particularly when one is supporting dependents.

It is important to understand that many people who file Chapter 7 do keep their homes and their vehicles, even though they have mortgage payments and car payments. Bankruptcy filers are entitled to keep to certain kinds of property under certain dollar values, so homes and vehicles do not have to be sold off unless they have significant equity above the homestead and vehicle exemptions. In Georgia, there is a homestead exemption of $21,500 (or $43,000 for a married person), an exemption of $3,500 for automobiles, $5,000 for household goods, and up to $5,600 as a "wildcard" for cash or other property which exceeded the category limits. Many retirement accounts are completely exempt as long as they meet certain requirements. Before you would file for Chapter 7 bankruptcy, you would make a careful analysis of whether your property is exempt and how you are going to indicate whether you are keeping your property.

There are types of debts which cannot be discharged in bankruptcy, however. Some of the most common nondischargeable debts are student loans, income taxes, child support, and debts to a former spouse from a divorce case. Of course, people with these debts can still file bankruptcy to deal with their other debts and be in a better position to meet these obligations. Anyone filing a Chapter 7 case should understand which debts are going to be discharged so they will be sure to get the relief they need.

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