One misconception people have about Chapter 7 bankruptcy is that it eliminates all debts. While there are situations when this is true, this is not the typical result. A common result of Chapter 7 bankruptcy is the forgiveness of some debts but not all. If you are thinking about using this option and want to know the effects it has on debts, keep reading to learn how Chapter 7 treats debts.
Step One: Classifying the Debts
Before you file your case, your lawyer can evaluate your debts. When doing this, your lawyer will classify them as priority debts and nonpriority debts. The lawyer may also talk about debts as dischargeable or non-dischargeable debts. Classifying them is essential as the classification determines what happens to them when you file your case.
The main thing that the classification tells you is whether the case will discharge the debts. If you have dischargeable debts, your lawyer might call these nonpriority debts. These are the bills that your Chapter 7 case will forgive. Bills that fall into the other category generally do not receive debt forgiveness.
Step Two: Understand the Differences
The debts discharged in Chapter 7 often include the following:
- Credit card bills
- Personal loan debts
- Medical bills
- Deficits you owe on past loans
The debts that typically are not discharged include IRS tax debts, student loans, and alimony. Your lawyer will look closely at each debt to help you understand the effects filing for Chapter 7 will have on your finances.
Step Three: Analyze the Situation
Finally, your lawyer will analyze the situation to determine if Chapter 7 is a beneficial option. To find the answer to this, your lawyer will separate all the debts to see the different categories. Next, the lawyer will explain the effects of bankruptcy on your debts to you. You must determine if filing is worthwhile based on the effects your lawyer discusses with you.
If you find that you will not receive as much relief as you hoped for or expected, ask the lawyer about other options. Your lawyer can explain the Chapter 13 bankruptcy process and determine if you qualify for it. He or she can also tell you about other debt-relief programs that you could consider.
Filing for bankruptcy is an event that you should not rush into because it has consequences. If you have questions about it, ask a bankruptcy lawyer of your choice.
Look for a Chapter 7 bankruptcy attorney in your area.
