What people should know about Chapter 7 bankruptcy

New Yorkers who are considering the bankruptcy process as a way to get out from under debt should be aware of the various pitfalls of Chapter 7 bankruptcy. Millions of people file for bankruptcy each year, whether for their individual debt or small businesses. Sole proprietors are personally liable for the debts their businesses accrue, and thus filing for bankruptcy is sometimes a consideration.

Chapter 7 bankruptcy is sometimes called liquidation bankruptcy, which means that the company is beyond reorganization. At this stage, it is necessary to sell off any nonexempt assets to creditors to repay the debts. Bankruptcy laws vary from one state to another, with some states providing more generous rules about the goods filers are allowed to keep as exemptions. It is also important to remember that mortgages and other secured loans are not eligible for discharge during a Chapter 7 bankruptcy.

If someone filing for bankruptcy went into debt with another person as a cosigner and files bankruptcy, the other person’s credit is damaged as well. A bankruptcy remains on a credit report for 10 years and does not discharge any sales or withholding taxes that are owed. A common misconception about bankruptcy is that debtors can pick and choose which property to list, when the truth is that all debts and property become fair game. These bankruptcy issues and misconceptions may prevent debtors from having realistic expectations about the bankruptcy filing process as well as the effect it will have on their credit.

A bankruptcy lawyer may be able to help debtors clear up any misunderstandings about a Chapter 7 bankruptcy. Filing for bankruptcy can help resolve overwhelming debt, but it is important to understand the financial challenges that occur along the way.