Why File Chapter 7 Bankruptcy in 2024

Filing for chapter 7 bankruptcy wipes out most of your debts while allowing you to keep certain assets. This is called “liquidation bankruptcy.” A chapter 7 bankruptcy clears away credit card bills, medical debts, personal loans, and other unsecured debts that you cannot pay back. The court sells any assets that are not protected, like a second car or valuable property, and uses that money to pay back creditors. Then all of your leftover debts are discharged – meaning you are no longer legally required to pay them.

Filing chapter 7 bankruptcy in Maryland gives you a fresh start if you have struggled with too much debt. It stops collection calls and lawsuits against you. It also prevents creditors from garnishing your wages or putting liens on your bank account and assets. This gives you financial relief so you can start rebuilding your credit score. A chapter 7 bankruptcy stays on your credit report for 10 years but may actually help improve your credit over time.

What Is Chapter 7 Bankruptcy and How It Works

What Is Chapter 7 Bankruptcy and How It Works

Chapter 7 bankruptcy, also called “liquidation bankruptcy,” is a legal process where a court-appointed trustee liquidates nonexempt assets to pay creditors. This allows you to eliminate most unsecured debts like credit cards, medical bills, and personal loans while keeping essential assets.

You get to keep exempt property like:

  • Home equity up to your state’s limit
  • Vehicles up to a certain value
  • Retirement accounts
  • Clothing and household goods

Most unsecured debts can be wiped out, except certain nondischargeable debts. This provides financial relief and a fresh start.

A chapter 7 bankruptcy stays on your credit report for 10 years but could improve your credit over time by discharging debts. The court case typically closes within 3-6 months after filing.

Chapter 7 Bankruptcy Eligibility and Qualification Rules

The chapter 7 means test examines your finances to see if you qualify to file. Specifically, it looks at your:

  • Income – Your average monthly income over the last 6 months
  • Expenses – Including food, housing, transportation, healthcare, etc.
  • Debt levels – Total unsecured debts like credit cards or medical bills

You generally qualify for chapter 7 bankruptcy if you have little disposable income left each month after paying basic living costs.

Even filers with high incomes could qualify if they have:

  • High debt-to-income ratios
  • Limited disposable income

You may not qualify if you:

  • Filed bankruptcy recently
  • Committed fraud
  • Violated court orders

There are some exceptions. An attorney can help you understand if you meet eligibility requirements.

Reasons and Benefits of Filing Chapter 7 Bankruptcy

  • Eliminate unsecured debts you can’t afford like credit cards, medical bills, personal loans, and payday loans. Chapter 7 bankruptcy legally discharges these debts, providing immediate financial relief.
  • Stop collections from creditors like wage garnishments, lawsuits, eviction notices, and harassing phone calls. The automatic stay triggered by bankruptcy filing halts these.
  • Catch up on car loans, mortgages, and other secured debts more easily after eliminating unsecured debts. This helps you avoid repossessions and foreclosures.
  • Keep essential assets like reasonable home equity, vehicles up to a certain value, retirement accounts, clothing, household goods, and more. Exemptions allow protecting necessities.
  • Improve credit over time as old debts fall off credit reports starting month 10 after filing. Chapter 7 bankruptcy stays on credit for 10 years but enables rebuilding credit.
  • Get a fresh start financially after discharging burdensome debts through liquidation. Chapter 7 provides critical relief for those facing severe financial hardship.
  • Stop interest accumulation as debt balances are frozen at time of filing. This prevents balances from inflating further.

How Much It Costs to File and Steps to Take

How Much It Costs to File and Steps to Take

Filing for chapter 7 bankruptcy can be an affordable option for getting out of debt in 2024. Here’s a breakdown of typical costs:

  • Attorney fees range from $1,000 to $2,500. Rates vary depending on experience, location, and complexity of your case.
  • Filing fees to submit your paperwork to bankruptcy court are $338.
  • Credit counseling is mandatory before filing. Online courses cost about $50.

Before meeting with a bankruptcy attorney, gather key financial documents:

  • Recent tax returns
  • Current pay stubs
  • Monthly bills and bank statements
  • Titles for vehicles and other property records

An attorney will review your situation and prepare the voluminous court paperwork properly. Key steps include:

  • Complete a pre-filing credit counseling course
  • Petition, schedules, and statements filed with the bankruptcy court to open a case
  • Potentially appear at a meeting of creditors to testify about your finances
  • Receive a discharge order eliminating qualified debt

Having an experienced bankruptcy lawyer handles the complexity is worthwhile. The legal system can be intimidating.

Alternatives to Filing Chapter 7 Bankruptcy

Before deciding to file for chapter 7 bankruptcy, explore these options:

  • Debt management plans: Nonprofit credit counseling agencies can set up payment plans with reduced interest rates. This helps pay down debts over time without damaging credit scores.
  • Debt consolidation: Borrow money at a lower interest rate to pay off higher interest debts. This simplifies payments into one monthly bill. Options include balance transfer credit cards and debt consolidation loans.
  • Debt settlement: Work directly with creditors or use a negotiation service to settle on paying a smaller lump sum. This does impact credit negatively at first.
  • Chapter 13 bankruptcy: A 3-5 year structured repayment plan overseen by the court to pay back a percentage of debt. This allows keeping assets like houses or cars.
  • Sell assets: Selling valuable items like cars, jewelry, or property to pay off debts quickly. This gives up the assets permanently.
  • Borrow from retirement: Allows borrowing from 401k or IRA retirement accounts without tax penalties. This should be a last resort because it jeopardizes retirement security.

Life After Filing Chapter 7 Bankruptcy

What Debts Are Not Discharged in Chapter 7

Once your chapter 7 bankruptcy case is completed and debts legally discharged, you can start rebuilding your financial life. Here’s what typically happens:

  • Credit Score Improvement. With old defaulted debts removed from your credit reports, your credit scores often start slowly improving. Focus on responsible credit behaviors.
  • Rebuilding Credit. Slowly start rebuilding credit by becoming an authorized user on someone else’s card, getting a secured credit card, or taking out a credit builder loan. Avoid racking up new credit card debt.
  • Budgeting Essential. Stick to a strict budget that accounts for basic living expenses. Prioritize savings and avoid unnecessary purchases on credit. Live within your means.
  • Discharged Debts Removed. Most unsecured debts like credit cards and medical bills are legally wiped out within 3-6 months after filing bankruptcy. Debt collectors can no longer pursue you.
  • Wait to Refile. You typically have to wait 8 years after filing chapter 7 bankruptcy to file again if needed. Make sure you’ve addressed what caused your bankruptcy.

While rebuilding your financial life after bankruptcy takes time, the fresh start provides critical breathing room. Be patient, focus on good financial habits, and continue moving forward.

What Debts Are Not Discharged in Chapter 7

Not all debts can be wiped out in chapter 7 bankruptcy. Some debts that you still owe after bankruptcy include:

  • Recent income taxes you owe the government
  • Payroll taxes and sales taxes owed to the government
  • Federal and private student loans unless you can prove repaying them is an “undue hardship”
  • Alimonychild support, and domestic support obligations you owe to family members
  • Finespenaltiesrestitution, and debts from criminal acts
  • Personal injury or wrongful death lawsuit judgments against you
  • The full amount owed on mortgagesauto loans, and other secured debts – you still owe up to the value of the property securing the loan

Even if some debts remain after bankruptcy, filing chapter 7 can still give you important financial relief. An attorney can advise if bankruptcy makes sense based on your unique situation.


Filing for chapter 7 bankruptcy allows you to wipe out unaffordable debts in 2024 while keeping essential assets. This provides critical financial relief and a fresh start. Make sure to understand the impact, meet with an attorney, and review all alternatives before deciding if chapter 7 bankruptcy is your best path forward. Contact a qualified bankruptcy lawyer for a free consultation to discuss your specific situation. They can advise if chapter 7 bankruptcy makes sense or if other debt relief options like debt settlement or debt management plans are better suited to help you eliminate debts and recover financially.

Jill Phillips
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