Declaring bankruptcy is not something you should take lightly. You need to consider it as a last resort to getting out from under the crushing bills you can no longer afford to pay. Chapter 7 bankruptcy is one avenue you may choose to pursue, especially since you have some investments that you can cash out. While you are nervous about how it will all happen, you should feel like you are at least doing something to free up your cash flow and make future payments on time.
Here are three of the essential elements that make up a Chapter 7 bankruptcy filing, so that you know what you to expect before the process begins:
- You Are Assigned a Trustee
Once you file for bankruptcy, a neutral trustee is appointed. This person is to meet with you and go over all of your finances including your debts, payment history, assets, and cash reserves. Once that is done, the trustee will start to make decisions like what items you can keep and what you need to return to creditors. In some situations, you may be able to hold on to things like a home and a car. Depending on the laws where you live, you may end up giving away both of these and starting completely fresh. If a life change has put you in this situation, like divorce or illness, your trustee will consider what is a reasonable expectation for payment and devise a plan.
- The Creditors Meeting
The trustee will notify all creditors of your intent to declare under Chapter 7 protection laws. Creditors will then get put in a line from highest to lowest, secured to unsecured. The difference between secured and unsecured debts is simple. If the debt has collateral attached, like a home or vehicle, then it is given priority. If there is nothing that a company can take, like debt from a credit card, the creditors are put further down the line for payment.
- Liquidation of Assets
Once a plan is devised, the trustee will begin liquidating unnecessary assets to pay back creditors. Some secured debts, like cars, may be returned. In instances where you don’t owe much but the car is valued higher than the debt, the creditor may have to pay you the difference. The extra money is then put back into paying other creditors. When all assets have been paid to the best of your ability, the proceedings end. If you didn’t have enough to pay everything off, the court should discharge the excess, giving you the chance to have a clean slate.
Choosing what bankruptcy to file for may come down to how much you can afford to give up. A bankruptcy lawyer, like a bankruptcy lawyer in Memphis, TN, can help you choose what sacrifices to make in order to better your financial future.
Thanks to Darrell Castle and Associates, PLLC for their insight into the basic elements of Chapter 7 bankruptcy.