If you are among the many Floridians in debt and unable to keep up with their bills, you may have heard about how Chapter 7 bankruptcy can help you. However, you may have also heard some unsavory things from friends or family about the process that may have caused you to rethink getting help with your problem. Fortunately, what you have likely heard about Chapter 7 is simply not true and should not deter you from considering it as a possible solution.
Loss of property
Probably the most pernicious rumor out there is filing Chapter 7 will cause you to lose everything you own. Although Chapter 7 may involve a sale of the filer's assets to pay debts, this typically only occurs in rare cases. Most of your important assets, such as home equity, clothing, furniture, retirement accounts and most personal belongings are protected from being sold by Florida or federal law. Consequently, the sale of assets only occurs if someone with nonexempt property (such as vacation homes, multiple cars or luxury items) files Chapter 7. Fortunately, most that seek Chapter 7's protection are deeply in debt and do not have these items, so they are able to keep their property throughout the bankruptcy process.
Ruination of credit
Another unpleasant thing that you may have heard about Chapter 7 is that filing it will ruin your credit, forever disqualifying you from obtaining a loan or mortgage. In reality, filing bankruptcy will cause your credit score to drop, but the effect is only temporary. In fact, soon after you complete bankruptcy, you will find that obtaining credit is fairly easy, as many creditors are willing to work with you, despite your bankruptcy. If you continue to use credit responsibly and pay your bills on time, your credit score will gradually increase. In as little as two or three years, you may find that you once again qualify for a mortgage or loan at favorable interest rates.
Difficulty in qualifying for help
You may have heard that obtaining Chapter 7 relief is nearly impossible, as it is difficult to qualify for as a result of the means test. Fortunately, this is not true at all, as most people qualify for Chapter 7 without any problem.
The means test initially looks at the amount of income you have. If your income is below the median for a Florida household of your size, you automatically qualify for Chapter 7. Even if your income is higher, you may still qualify. In such cases, the court will look at your disposable income-the amount left over after taxes and other necessities has been deducted. If your income is below a certain threshold, you also qualify for Chapter 7. Even if you are among the very few that fail the means test, Chapter 13 bankruptcy is available to you, which may also help you eliminate many of your debts.
Speak to an attorney before taking action
Chapter 7 may seem like the way out of your desperate financial situation, but you should file it only after seeking the advice of an experienced bankruptcy attorney. An attorney can outline the options available for your situation and recommend the one that would be best for you, given your long-term goals.