When Filing Bankruptcy Is the Best Option

3 Things You Need To Know About Chapter 7 Bankruptcy Before Filing

So many people find themselves in dire straits with their finances. Sometimes, the debts are manageable and a repayment plan can be created with each of the debtors. However, sometimes a repayment plan just isn't feasible because of the amount of debt involved. For those people, filing for Chapter 7 bankruptcy can be a viable solution. However, you shouldn't be so quick to turn to bankruptcy to solve your financial problems. Here are three things you need to know about Chapter 7 bankruptcy before filing.

1. You could still end up keeping some of your debts after filing for bankruptcy.

A common misconception is that you can get rid of all your debt during Chapter 7 bankruptcy. While it is possible to get rid of it all, it really depends on the types of debt you have. Not all types of debt can be discharged in bankruptcy court. Some of the debts that you can't discharge in Chapter 7 bankruptcy include:

  • Student loans (in most cases)
  • Child support
  • Alimony
  • Court fines
  • Recent tax debt
  • Settlements for court cases
  • Debts incurred by fraud

A bankruptcy attorney (such as Howard S. Goodman Bankruptcy Attorney) will help you figure out which debts you can include on the schedule for discharge and which debts will remain following the Chapter 7 bankruptcy.

2. You are required to undergo credit counseling before filing.

Before the court will allow you to file for Chapter 7 bankruptcy, you will have to go through credit counseling. You must do so within the previous six months before you file. The thing is that you can't go to just anyone to fulfill the credit counseling requirement. You must get the credit counseling from an agency that has been approved by the U.S. Trustee's office. 

The reason the U.S government has added this step before you can file for Chapter 7 bankruptcy is to see if there is any way your debts can be repaid. If they can, then you may be able to avoid bankruptcy altogether. 

3. Chapter 7 bankruptcy may not impact your credit score as much as you think.

Chances are if you are filing for Chapter 7 bankruptcy, your credit score is likely not the best. If that is the case, you probably won't notice much of an impact on your credit score. It will affect it, but probably not as badly as it would if you had a very good credit score.

The important thing to do is to try rebuilding your credit immediately following a bankruptcy. That means following a repayment plan for any debts that could not be discharged in your Chapter 7 bankruptcy. That way, by the time the bankruptcy falls off your credit report in about 10 years, you should have a credit score in far better shape than it was before the bankruptcy.