If you're facing unmanageable debt, chapter 7 bankruptcy may offer you relief. However, as a first-time filer, approaching the situation is likely accompanied by numerous questions. While a bankruptcy lawyer can offer answers specifically related to your case, the guide below explores general information about what's involved.

What to Know About Chapter 7 Bankruptcy

How does it work?

The method eliminates unsecured debts by liquidating assets. By selling non-exempt property, some or all of the debts owed are covered. If there are remaining amounts owed, they're discharged. 

The process is fairly short, only requiring six months to complete at the most. After meeting with a Bankruptcy attorney and deciding what is best in your world, you must take a credit counseling class online, and then your bankruptcy lawyer can file the bankruptcy petition with the court. At this point, all collection efforts are halted, and a meeting with the creditors is scheduled. After answering questions at the hearing, any non-exempt property is sold, and debts are either paid off or forgiven. 

What are unsecured debts? 

Chapter 7 bankruptcy only allows you to get rid of certain types of debts. Unsecured accounts that aren't attached to any collateral—like most credit cards, personal loans, and medical bills—often qualify for forgiveness. Student loans, child support, alimony, and tax bills, on the other hand, can't be discharged. 

What are the qualifications?

There are income restrictions for filing. Chapter 7 filers need to make under their state's median income for a family of the same size. If not, you may still qualify by passing the written means test. However, there isn't any maximum debt restriction.

Another option is Chapter 13 bankruptcy, which doesn't have income limits. As such, check with a lawyer to determine if it's a viable alternative to Chapter 7 for you. While it doesn't offer liquidation, it does create a digestible repayment plan based on what the filer can afford. 

Will I have to give up my home? 

The court allows filers to claim exemptions up to a certain amount. For dwellings, a single person can exempt up to $25,150 in home equity and a married couple can exempt twice that. If your home’s value less any outstanding mortgage is worth more than that, then you might use Arkansas State exemptions which allows full exemption of your residence. There's also a wildcard exemption to be used on exempting assets. The whole process can seem overwhelming, but we can explain how to best utilize the available exemptions and get a fresh financial start.  

If you're struggling with debt, reach out to Watson Law Firm in Harrison, AR, to review your relief options. The local bankruptcy lawyers offer guidance and representation to residents across Boone County, providing personalized assistance through every step of the process. Learn more about their practice areas online, and book a consultation today at (870) 704-4037.