How liquidation bankruptcy may be beneficial to debtors

Chapter 7 bankruptcy is an option for people who are overwhelmed with debt and need a way to begin again.

People who are overwhelmed with medical expenses, credit card debt, mortgages and other mounting expenses may consider bankruptcy as a solution to their financial distress. While there are several types of bankruptcy available, Chapter 7 allows people to erase most debt from their financial record and enjoy a new start. Chapter 7 is also the most popular form of bankruptcy in the United States, according to the U.S. Courts. Out of a total 790,830 bankruptcies filed across the nation from September 2016 to September 2017, 486,542 filings were under Chapter 7.

What is Chapter 7 bankruptcy?

Chapter 7, otherwise known as liquidation bankruptcy enables people to refreshen their finances and begin rebuilding their credit. Before the debt can be discharged, however, people must meet certain requirements that are mandated by U.S. Courts. The debtors' income must fall below the state median or they must pass the state mean's test in order to be eligible. In addition, the filer must also complete a credit counseling course, which gives helpful information regarding Chapter 7 bankruptcy, budgeting and how to manage your credit.

Stop creditor harassment

As soon as the bankruptcy documentation is completed and entered into the court, a notice is sent to all creditors listed in the paperwork. This puts an automatic stay on creditors' attempts to collect funds from the filer. Creditors are unable to contact debtors through phone calls, garnish wages or threaten legal action. It is crucial that filers list all creditors on their documentation, as these are the parties that are given notice to stop contacting the debtor.

Wipe out most types of debt

Although bankruptcy wipes away most debt from a person's financial record, it does not necessarily take care of all expenses. There are some types of debt that liquidation bankruptcy cannot eliminate, such as child support, owed taxes and student loan expenses. Debtors can choose to reaffirm their car or home loan during the bankruptcy, which allows them to continue paying on the loan. This keeps the property from getting repossessed by the bank. In some cases, the financing party may lower the interest rate and/or monthly payments to help the debtor continue making payments.

Simplify the process

If you feel overwhelmed with debt, you may want to explore your options. You may be able to file for bankruptcy or find another form of financial relief. An attorney in Washington may be helpful in answering any question you may have. A lawyer will listen to the details surrounding the situation and point you in the right direction.