Who Should Go Straight To Chapter 7 Bankruptcy?

In America, the Chapter 7 bankruptcy law often allows people who are facing major financial burdens to start fresh. The court makes this happen, if it grants a person's petition, by liquidating many of their outstanding debts. This means the debts are legally gone after the court grants relief.

Chapter 7, however, is one of two options. The other is a restructuring process, usually Chapter 11 for businesses and Chapter 13 for individuals. Naturally, you might wonder whether Chapter 7 is the right option for you. A Chapter 7 bankruptcy lawyer may encourage you to look at these three scenarios where people should go straight to liquidation so you can decide.

Few or No Secured Debts

Restructuring is typically best for people who have what the law considers secured debts. These are obligations that involve a physical asset. Cars and houses tend to be the most common forms of secured debts. On the flip side, credit card and utility bills are unsecured because a creditor can't take anything back.

If you don't have a mortgage or an auto loan, you may not get many benefits from restructuring. People who own their cars or homes outright can claim them as exempt as long as they have reasonable values and aren't too luxurious. A court-appointed trustee will make a determination, and then a judge will decide based on the trustee's advice.

Many Potential Exemptions

Chapter 7 bankruptcy law helps you begin anew. The law understands that people need basic things to have a fair chance financially. Consequently, filers can request exemptions for the things they need as long as they own them outright. You can usually claim a primary residence, a reasonable vehicle, work tools, clothing, furniture, and other basic items.

Notably, some states permit exemptions up to a certain amount regardless of how ostentatious the assets might be. Theoretically, a person could hold onto bricks of gold as long as the value stays below the threshold.

Never assume this is the case in your state, though. Contact a Chapter 7 bankruptcy lawyer to learn what the exemption rules are where you live.

Impossible Debts

The final group of people who are likely to go straight to Chapter 7 are people with debts they can never pay off. For example, someone may lack the income necessary to make any restructuring plan work. In that scenario, a judge is likely to dismiss any restructuring request. Consequently, those petitioners may be better off jumping to Chapter 7 and avoiding the time and filing fees associated with exploring other options.