Chapter 7 bankruptcy, sometimes called a "straight bankruptcy", is one of the simpler chapters to file under. In short it is the liquidation of the debtor's property in order to pay off their outstanding debts. However, there are several alternatives to a chapter 7 which should be looked in to before filing.

Alternatives

Alternatives to a chapter 7 include filing a chapter 13 or a chapter 11 if you own a business and wish to stay in business. A chapter 13 allows you to save your home from foreclosure and to catch up on outstanding debts by making a repayment plan. A chapter 11 bankruptcy is generally for business owners who wish to say in business. This is done by either adjusting the debt that is owed by reducing it or extending the repayment time. The owner may also seek reorganization, which is more comprehensive.

Eligibility

To be eligible to file a chapter 7 bankruptcy your income must be below average for your area. If this is not the case then you must pass a means test to determine whether you are eligible to file a chapter 7, or if you must file a chapter 13 instead. This will be determined when you meet with your attorney to file for bankruptcy. A chapter 7 also does not take care of all debts. Debts that it does not cover include taxes, child support, student loans, fines and restitution, and alimony. Filing a chapter 7 also does not mean you will lose everything.

"Will I Lose Everything?"

A common concern that people have is whether or not they will lose everything. The answer is no, some of your property is exempt from liquidation. These include your car, your home, clothing, and anything else necessary for survival and to earn a living. This comes as a relief to a lot of people worried that they may lose their home and general livelihood due to a bankruptcy. This is one of the many benefits of filing a chapter 7 bankruptcy.

Benefits of Chapter 7

There are many benefits to filing a chapter 7 other than just keeping your house and car. Speed is a big factor when it comes to chapter 7. As opposed to a chapter 13 which can take up to 5 years to complete, a chapter 7 only takes about 5 months. There is also no repayment plan to deal with which means less hassle in the long run. While filing you are also protected from annoying creditors. This means no more phone calls, wage garnishment, repossessions, and foreclosure proceedings. Also you will benefit from an improved credit rating. This may sound weird, but it's true, most people come out of a bankruptcy with a higher credit rating in the long run. For tips on how to do this see " Your Credit After Bankruptcy ".

Cost

In addition to attorney's fees, a chapter 7 does not cost much. There is a required filing fee of $300 due to the bankruptcy court, and a credit counseling course before and financial management course after filing as required by the new bankruptcy law in 2005. These can cost anywhere from $35 to $50 per course.