Debt problems do not begin with the intention of filing for bankruptcy. However, when your bills grow faster than your ability to pay, Chapter 7 bankruptcy can become a path toward relief.
Chapter 7 bankruptcy is a legal process that allows you to erase common debts, such as credit card balances or medical bills, after the court reviews your finances, among other considerations. They may use certain property you own to repay part of what you owe.
However, the process does not run on autopilot. The court still expects you to follow specific rules throughout your case. Knowing what you cannot do in a Chapter 7 bankruptcy can help you avoid mistakes that could delay or affect the outcome of your bankruptcy.
You cannot hide or fail to disclose assets
The court expects your full transparency, so when you file for bankruptcy, you must list all property, income and financial transactions. Trying to leave out a bank account, valuable item or side income can raise serious concerns.
According to the U.S. Courts’ bankruptcy basics, the court relies on complete financial disclosures to determine how assets are handled and if debts qualify for discharge.
You cannot transfer property to keep creditors from reaching it
You must not move assets into a family or friend’s name or sell them for less than their value to avoid creditors from reaching your property. Courts often review transactions made before bankruptcy and may raise serious issues in your case if you do this.
You cannot take on new debt right before filing
Charging luxury purchases or taking large cash advances right before filing for bankruptcy may create problems. Creditors can challenge those debts and ask the court to exclude them from discharge, which means you could still be responsible for paying them even after the court closes your bankruptcy case.
You cannot expect every debt to disappear
Chapter 7 can eliminate many unsecured debts, but some obligations remain. In Massachusetts, certain debts such as recent taxes, child support, alimony and many student loans typically survive bankruptcy because the law considers these obligations as ongoing responsibilities and generally does not allow them to be discharged.
Knowing the restrictions can help you protect your case
Chapter 7 bankruptcy can offer a path toward financial recovery, but the process depends on your transparency and careful planning. Your small decisions during or before a case may affect the outcome.
To better understand how Chapter 7 compares with other debt relief options, it may help to explore the different types of consumer bankruptcy. Learning how each option works can give you a clear picture of the path you are currently on.