Facing financial hardship? Chapter 7 bankruptcy might be an option. However, before filing for this type of bankruptcy, it’s important to understand how it works. This process has specific steps and eligibility requirements. Here’s what you need to know.
What exactly is Chapter 7 bankruptcy?
This type of bankruptcy is a legal process that erases most unsecured debts. Unsecured debts include credit card bills, medical bills and personal loans. The process usually takes four to six months. You file papers with the court showing all your debts, income and property.
The court assigns a trustee to your case. The trustee might sell some of your property to pay creditors, but many people keep all their assets because of exemption laws.
You attend a meeting with the trustee, who asks you questions about your finances. If everything is ok, the court grants a discharge, which erases most eligible debts. However, some debts, such as recent taxes, child support, and most student loans, are typically not dischargeable.
Who can file for Chapter 7 in Ohio?
To file Chapter 7 in Ohio, you must pass the means test. This test checks if your income is low enough. As of 2024, you usually qualify if you earn less than $61,148 for a single person or $77,214 for a family of two.
If you earn more, you might still qualify if your debts are high enough. The court will look at your last six months of income and all your expenses.
How it affects your credit
Filing Chapter 7 bankruptcy has a big impact on your credit. It stays on your credit report for 10 years from the filing date. This makes it harder to get new credit cards, loans or even rent an apartment. Your credit score will likely drop significantly, often by 100 points or more.
However, the impact lessens over time. You can start rebuilding credit right after bankruptcy by:
- Getting a secured credit card
- Becoming an authorized user on someone else’s account
- Paying all bills on time
- Keeping your debt low
Many people see their credit scores start to improve within one to two years if they’re careful. Some can qualify for a mortgage two to three years after bankruptcy if they rebuild their credit well.
Consider all of these factors while you’re considering Chapter 7 bankruptcy.