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Why file for chapter 7 bankruptcy?

Post by Christopher Migliaccio

One of the most common reasons a person will file for chapter 7 bankruptcy is to discharge insurmountable debts. This typically helps pave the way for a fresh financial start. Although there are several options available for declaring bankruptcy in Texas, many consumers opt for chapter 7 because of the specific advantages involved.

Debts Included in a Chapter 7 Bankruptcy Discharge

Chapter 7 is a viable option for someone who is experiencing financial hardship due to overwhelming debt. An example might include a single parent who has endured a health crisis and accrued medical and utility bills while being unable to earn income. Chapter 7 may offer someone in a similar situation with options to dig themselves out of an economic hole.

A chapter 7 bankruptcy filing will discharge – or wipe out – a wide range of debts. This may include: 

  • utility bills;
  • pay day loans; 
  • medical or hospital bills;
  • certain personal loans;
  • qualified credit cards;
  • the balance owed after a home foreclosure; and
  • the balance owed after a car repossession.

In some cases, a filer may also wipe out qualified back taxes. Filing bankruptcy does not discharge student loans, save for exceptional circumstances. Chapter 7 differs from chapter 13 in that there is no financial cap on how much debt can be discharged.

How Chapter 7 Protects a Debtor’s Personal Property 

Many debtors choose chapter 7 bankruptcy because it allows them to maintain most or all private property. There are exceptions, but generally speaking, many chapter 7 filers will not have to forfeit property or assets.

Under Texas law, you may have to forfeit or sell what is known as non-exempt property: 

  • valuable collections;
  • secondary homes or vehicles;
  • stocks and bonds; and
  • certain bank accounts.

These non-exempt properties are used to pay off creditors. Many people who choose chapter 7 bankruptcy have few properties that qualify as non-exempt.

Items like: 

  • a home;
  • car;
  • pension; and
  • wages, are considered exempt and cannot be seized to pay off creditors.

Debtors are Truly Free and Clear of Past Debts Under Chapter 7 

Another common reason for filing chapter 7 bankruptcy – instead of chapter 13 – is that there is no required repayment plan. Those who file chapter 13 are given a payment plan that must be confirmed by a bankruptcy court. This plan may call for a 100 percent repayment of secured debts and anywhere from zero to 100 percent repayment of unsecured debts. Those who file chapter 7 are not obligated to repay any discharged debts.

An Option for Those with Pressing Financial Concerns 

Financial urgency is another reason a person may choose to file chapter 7 bankruptcy. This process is generally much faster than other bankruptcy alternatives. In most cases, a bankruptcy court will discharge debts within 60 to 90 days of filing. This is followed by the distribution of non-exempt properties to creditors, when applicable. After that, the case is closed.

To learn more about reasons for filing for bankruptcy, contact Warren & Migliaccio. Call us at 888-584-9614.

FAQ Category: Chapter 7 Bankruptcy

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