One of the most common forms of debt relief people take is Chapter 7 bankruptcy. Chapter 7 bankruptcy is also called liquidation bankruptcy because many people have to go through a liquidation process to pay off some of their debt. Liquidation is the act of selling off assets to pay off creditors.
Many people’s initial thoughts are that they will have to sell off everything they own after filing for Chapter 7 bankruptcy. However, this is a common misconception. Here’s what you should know:
What are exempt or non-exempt assets?
Assets are considered either exempt or non-exempt in a Chapter 7 bankruptcy case. Exempt assets means any assets that won’t be liquidated. In many people’s cases, a home, clothing, kitchen appliances, furniture and trade tools are all exempt.
Conversely, assets that may be liquidated to pay off debt are considered non-exempt. Non-exempt assets may include a second home, real estate property, collectibles or a vacation home.
What about your credit score?
One of the downsides to liquidations bankruptcy, like most forms of bankruptcy, is that it will affect your credit score. Your credit score will likely plummet after filing for bankruptcy, but you can build it back up by taking on debt in the future. It’s entirely possible to have a good credit score within two short years.
Why choose Chapter 7 bankruptcy?
Many people don’t file for bankruptcy because they fear they’ll lose everything, but the important thing to remember is that they’ll be losing some or all of their debt quickly. Chapter 7 bankruptcy is often available for people who can’t make recurring payments and want the best choice for them.