7 Ways Chapter 7 Can Help You Handle Debt


Loans and credit offer easy ways to fund your dream purchases…but when debts start to pile up, the dream can turn into a nightmare. If it gets to the point where you are drowning in debt you simply cannot pay, it may be time to consider Chapter 7 bankruptcy.


Chapter 7 bankruptcy protection can help you get out from under unmanageable debt and make a fresh start. This avenue isn’t right for everyone, but for qualifying filers, here are 7 ways Chapter 7 can help you handle overwhelming debt:

1. Discharge most of your debts

With the exception of a few types of loans, most of your unsecured debt can be discharged in Chapter 7. This includes credit cards, medical bills, and loans that are not secured by property (such as a house or car). The size and scope of your debt is irrelevant. There is no limit to the number of loans and amount of debt that can be eliminated through Chapter 7.

2. Protect some of your valuable assets

Although Chapter 7 allows for asset liquidation to pay outstanding debt, federal and state bankruptcy laws provide for many property exemptions. In many cases, you can keep a car, retirement accounts, and equipment related to your job (for example, tools). You are almost always allowed to keep your clothing and household furnishings. Some debtors also qualify for a “homestead exemption,” which means you can keep your home in specific circumstances.

3. Keep creditors at bay

Once you have filed a Chapter 7 bankruptcy petition, there is an automatic stay (halt) for all collection activity. This means your creditors cannot pursue lawsuits against you, garnish your wages, add more dings to your credit, or even contact you to request payment. Your existing debts will no longer accumulate interest charges and penalty fees, and once officially discharged, creditors are permanently banned from pursuing you further for payment. (Note that creditors can repossess secured property, such as a car. Debtors can sometimes agree to “reaffirm” a car loan and negotiate to keep the car.)

4. Relieve Damaging Stressors

When you are sinking under a load of insurmountable debt, your relationships and even your health can suffer. Chapter 7 bankruptcy protection can stave off aggressive collections, postpone foreclosure, and allow you time to reassess, reprioritize, and make necessary decisions. While providing breathing room, the Chapter 7 process is relatively quick and efficient. You can expect to obtain desired debt relief in three to six months.

5. Create financial breathing room

By eliminating some of your crushing debt, Chapter 7 allows you to more comfortably pay for priority expenses and non-dischargeable debt. (In addition to child and spousal support obligations, Chapter 7 does not wipe away student loans, legal judgments, and most types of unpaid taxes.) With your debt load substantially decreased, you will be better equipped to keep up with your monthly expenses. 

6. Protect future income and assets

Once your Chapter 7 bankruptcy is successfully discharged, you can pursue income and wage opportunities without fear of garnishment. Any property you acquire after you file for Chapter 7 is yours to keep.  (Note: Within 6 months of bankruptcy filing, inheritances and some types of settlements remain vulnerable to liquidation.)

7. Wipe the slate clean to rebuild your finances

Sometimes, the sooner you start over, the better. Studies show it is the period before filing for bankruptcy that can be most damaging, with repossessions, defaults, lawsuits and wage garnishment affecting your reputation and ability to rebound. Although a bankruptcy certainly hurts your credit score, continuing to flounder for too long can do as much or even more damage.

Before filing for bankruptcy, it is best to seek the help of a qualified Lexington, KY Chapter 7 lawyer, who can help you decide the best path for you. Not everyone is eligible for Chapter 7, and alternative debt assistance may be preferred in some instances. Credit counseling can sometimes help, and some individuals will benefit from Chapter 11 or Chapter 13 reorganization.