Chapter 7 bankruptcy has known association with risk to personal resources. After all, Chapter 7 bankruptcy is sometimes also called liquidation bankruptcy. The courts can sometimes require that people sell off their assets or use their savings to cover debts as part of the bankruptcy process.
Despite what people may have heard about Chapter 7 bankruptcy, the reality is that most individuals who qualify to file do not have to liquidate any of their resources. The use of exemptions to protect certain property can help people bypass the threat to their resources. In fact, Chapter 7 bankruptcy can be very beneficial for those worried about protecting their most valuable personal holdings.
How can a Chapter 7 bankruptcy help those worried about the loss of their resources?
The protection of an automatic stay
As soon as someone files for bankruptcy, they have certain protections. Specifically, they can enjoy temporary relief from collection activity. Many people decide to file for bankruptcy specifically because they face aggressive collection efforts from certain creditors.
Perhaps they have fallen behind on their vehicle loan and worry about repossession. Maybe they have insurmountable medical debt and worry that the hospital may try to place a lien against their home. Those facing aggressive debt collection efforts can halt that activity with a bankruptcy filing. The automatic stay results in not just a cessation of phone calls but often the dismissal of pending lawsuits. People can prevent repossession, foreclosure and liens that put their property at risk.
The elimination of eligible debts
Those who have fallen behind on their mortgage payments or vehicle payments may need help making their budgets more sustainable. Bankruptcy can help them achieve exactly that. A successful Chapter 7 bankruptcy filing can eliminate eligible unsecured debts. Filers can discharge credit card balances, medical debts and other eligible unsecured debts. They can then use their income to cover their most crucial financial obligations, including car loans and mortgages.
Filing for Chapter 7 bankruptcy can be a way to protect high-value personal assets. Between exemptions, the automatic stay and the discharge of debts, those filing for bankruptcy are often able to protect what matters most and put themselves in a better position to keep their budgets balanced in the future.