Chapter 7 bankruptcy, also called liquidation bankruptcy, is a kind of bankruptcy that allows you to get out of debt by eliminating your debts through legal action. To do this, you must be willing to give up certain items that are not exempt from liquidation. They are then sold, and the proceeds are used to repay creditors. Once the proceeds are used up, the remaining debts are forgiven.
There are several benefits to Chapter 7 bankruptcy. These include:
- Being able to eliminate all unsecured debts (alimony, tax debts and student loans are not usually dismissed)
- Having no repayment plan
- Completing bankruptcy in around 3 months
There are disadvantages, though, like having to give up some of your personal property. Not all debts are able to be discharged through this form of bankruptcy, and the bankruptcy will remain on your credit report for up to 10 years, impacting your ability to obtain credit in the future.
There are alternatives to bankruptcy, one of which is similar to bankruptcy itself. If you can liquidate your own assets and pay off your debts, this can be a good way to get out of debt without the long-lasting impact of a Chapter 7 bankruptcy. You can negotiate with your creditors to obtain settlement offers, which you can then pay off for a fraction of what you actually owed on your debt.
Your attorney can talk with you about bankruptcy alternatives and whether going through bankruptcy is a wise choice for you. If the alternatives will not work out well, bankruptcy is sometimes the better option to choose.