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

In today's world, it can be easy to get into a lot of debt quickly. Many people have more than one credit card and it can be tempting to charge things that you want when you can't afford to buy them otherwise. Unfortunately, those charges all add up and can quickly turn into a nightmare with debt collectors calling you several times a day. One way to alleviate that financial stress is to file for Chapter 7 bankruptcy. Here are three things you need to know before you file.

1. You may still be stuck with some of your debts after the bankruptcy.

One of the good things about Chapter 7 bankruptcy is that you can eliminate a lot of your debt—some may even be able to eliminate all of their debt. However, there are some types of debt that won't be discharged in a Chapter 7 bankruptcy. Those debts include:

  • Student loans (in most cases)
  • Child support
  • Spousal support
  • Recent tax debt
  • Court fees
  • Court settlements for personal injury cases
  • Debts incurred through fraud
  • Government fines

It is possible to get student loans discharged, but you will have to meet the standards for the discharge. Usually, in order for you to get a student loan discharged, you have to prove:

  • That repayment would cause an undue hardship on you and prevent you from having a minimum standard of living for you and your family
  • That your financial situation will continue to make it impossible to repay your student loans for the foreseeable future
  • You did make an effort in good faith to repay your student loans before you filed for Chapter 7 bankruptcy

2. You must complete credit counseling before you can file for Chapter 7 bankruptcy.

Not many people realize that they have to complete credit counseling before they can file for bankruptcy. Within the six months leading up to filing for bankruptcy, you must go to a credit counselor that has been approved by the U.S. Trustee's office and go through their counseling session.

They will look at your debts and your income and see if a repayment plan is possible. Even if they do think it would be feasible for you to repay your debts on a repayment plan, you can still go ahead and file for bankruptcy. Just be aware that the court may agree with the credit counselor and try to get you into a Chapter 13 bankruptcy repayment plan instead.

Of course, there are some exceptions where you don't have to complete the credit counseling before you file. For instance, if you have tried to obtain credit counseling and didn't get an appointment within five days, you can go ahead and file. Another example is if you had to file bankruptcy immediately to stop something from happening, such as a home foreclosure. In both of these cases, you can file without having met the credit counseling requirement, but you will have to complete it within 30 days after filing.

You may also be able to file without meeting the credit counseling requirement if you have a disability that prevents you from attending the counseling (this only applies if counseling isn't available online or over the phone), you're mentally incapacitated, or you're on active duty with the military in a combat zone.

3. You won't be able to file for bankruptcy again for some time.

If your debts are few and the credit counselor finds that it is feasible for you to repay your debt, and not have your standard of living fall below minimum standards, you should really consider not filing for bankruptcy.

The reason is that you can only file for bankruptcy every few years. If you file for Chapter 7 bankruptcy now, you will have to wait eight years before you can file for Chapter 7 bankruptcy again—or four years if you want to file for Chapter 13 bankruptcy next.

So, considering the amount of time you would have to wait to file for a discharge under Chapter 7 again, you may want to rethink filing if there is any way that you can repay your debts instead. For more information, contact professionals like William C Fithian III.