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Chapter 7 bankruptcy isn’t the right choice for everyone. Before filing for Chapter 7, ask yourself the following questions:

1. Are you judgment proof even without Chapter 7? What that means is, can your creditors actually get anything from you even if you don’t file for Chapter 7.

2. Will Chapter 7 discharge enough debts to make it worthwhile. Bankruptcy has serious repercussions on your credit that last for a long time.

3. Will you lose more than you gain? When you file for bankruptcy, the bankruptcy court will attempt to liquidate your assets. Therefore, any property, vehicles, or other valuables you may have may be taken from you if you cannot protect them.

Are you Judgment Proof?

When unsecured creditors attempt to take your money or property they usually must go through the court to do so. They must first obtain either a wage garnishment or authorization to seize property before they are able to do so. In many cases, your income itself may be exempt from collection altogether. For instance if your income is from Social Security, your creditors cannot get at it.

Moreover, oftentimes your creditors simply won’t even try to take your money or property through the courts. While they may call you or send letters, they won’t be able to actually touch any of your money.

Even with all of that in mind, Chapter 7 may be correct for some people that are otherwise mostly or wholly Judgment Proof. Chapter 7 can provide a fresh start for many consumers and may be the best option regardless of your income, property, and other concerns.

Will Chapter 7 discharge enough debt?

Certain debts will simply not go away by filing for Chapter 7 bankruptcy. Child support, alimony, student loans (in most cases), recent income taxes, recent debts, and certain personal injury debts (particularly those arising from DUI cases) will stay with you even if you file for debt. Other debts may also be non-dischargeable if the bankruptcy judge rules that the creditor can still pursue the debts after bankruptcy. Your creditors may ask the judge in a bankruptcy case to rule that their debts are special and not subject to discharge. The judge will then have to determine whether or not to allow those debts to be discharged in Chapter 7.

Finally, do you even have enough debt to make bankruptcy the best option? While this is more of a case-by-case evaluation, you may be able to get out from under your debt by negotiating directly with the creditor for reduction in the amount of debt you owe, or for a lenient payment plan. What will you have to give up?

Many assets that are necessary for daily life will be “exempt” from the bankruptcy court – you will get to keep these assets regardless of whether you file for bankruptcy. Motor vehicles (up to a certain value), homes (also up to a certain value), clothing, household necessities, certain insurance policies, tools of the trade, and various other assets you will get to keep.

However, other assets that are not necessary may be taken by the bankruptcy court, sold, and redistributed for your creditors. These types of assets may include family heirlooms, additional vehicles and homes, cash, and bank accounts.

Conclusion
Bankruptcy is a major decision that should not be taken lightly. When deciding whether to file for bankruptcy, it is helpful to ask yourself the three questions above first, and then really start to evaluate whether bankruptcy is right for you. One of the worst things you can do is rush headlong into a bankruptcy only to realize half-way through that it’s not right for you (if you do this, you may even lose the right to file for bankruptcy again for a period of time)!