Chapter 7

Bankruptcy 101. Failure. Deadbeatism.

The ominously titled Chapter 7 gets its name from the 7th Sign of the Apocalypse, in which the deadbeat is basically hitting control-alt-delete in their life, financially speaking.

Specifically, this reboot has the deadbeat liquidating essentially all of her assets to pay off debts, before she is given a clean slate, so to speak, with the excess written off.

It’s like inviting an auctioneer to barge into your life, rummage through everything you have, and sell it for you.

Make a mental note: each state has different requirements for this process. Exemptions are things the person is allowed to keep; a home may be allowed as an exemption, but there will be a dollar amount cap on the home’s value. Cars might have this condition as well.

Cons: the bankruptcy can stay on credit reports for 10 years, and there will be no credit cards or car loans for the bankrupt person for a while. Only one Chapter 7 bankruptcy is allowed per 6 years, which could bite you if you’re not well-prepared during the first one. It also won’t dismiss student loans. If you’re not considered poor enough, the court might refuse your request to be bankrupt, and convert the Chapter 7 to a Chapter 13. That’s a big deal, because a 13 doesn’t auction off your stuff and get it over with in a few months (usually 6 months or less). Instead, it makes you pay off debts in 3-5 years.

The pros: Chapter 7 can be a quick process, and you can keep some of your belongings. And, since you’re out of bankruptcy quickly, you might qualify for credit sooner than with other bankruptcies.