The Pros And Cons Of Bankruptcy Chapter 7

Claiming bankruptcy can seem like a scary concept, but if you are drowning in ever-increasing debt, it may just be the answer you were looking for.  Millions of people file for personal bankruptcy every year but before you make this life-altering decision, you should make sure you have carefully weighed the pros and cons of bankruptcy Chapter 7.

Chapter 7 of the U.S. Bankruptcy Code is a traditional concept of liquidation in order for your creditors to at least recoup a portion of what is owed to them through the sale of your assets.  This is not nearly as bad as it sounds as many states make allowances for your home and car, classifying them as necessary property so you do not lose them.  It also means that your creditors will be repaid and so you will not have to deal with harassing phone calls and visits from collection agencies.  In most states debtors are protected against angry and impatient creditors under various harassment laws, but it is often hard to put an end to them without payment of some kind.  If you follow the personal bankruptcy filing procedure correctly, in as little as 6 months, you could be debt free and able to start rebuilding your credit with a bright financial future ahead of you.

Let’s recap the advantages of filing under Chapter 7:

•    No more debt – depending on what type of debt you have, it could all be discharged and wiped out for good.  Unsecured debt such as credit card debt and medical fees are very often erased in a Chapter 7 bankruptcy claim.

•    No more angry creditors – once your creditors have been informed that you have filed for bankruptcy, negotiations will take place through the courts.  You will no longer be harassed by them.

•    A fresh financial start – with your debt erased and angry creditors off your back, you will be free to start rebuilding your finances.

•    The possibility of keeping your home and car – depending on which state you live in, your home and car could be considered ‘necessary’ items and therefore exempt from the liquidation process.

•    A quick process – it could be as little as 6 months from the time you file the required paperwork until your debts are officially discharged through the courts.

Although Chapter 7 is advertised as offering a fresh financial start, it may not end up as appealing as you had expected.  What you are actually left with after your debts have been discharged, is bad credit.  This isn’t to say you will never be able to qualify for a mortgage or a loan again, but the process of raising your credit score is a long and arduous one.  While you may be able to purchase or rent property in the future, it will be extremely difficult for the year immediately following your bankruptcy filing.  Another thing to be aware of is the fact that your financial slate may not be wiped completely clean.  This is due to the fact that certain items cannot actually be discharged under Chapter 7.  You should be sure to consult a qualified bankruptcy attorney prior to filing to ensure you have realistic expectations of the outcome.  Liquidation of your assets is something your attorney will discuss with you, along with any possible loopholes that may exist where you can hide your assets and avoid them being taken from you.  Unfortunately, you will lose all but what the state has deemed necessary or essential, and it can be hard to recover and rebuild after bankruptcy.  Above all else, the negative stigma attached to bankruptcy can be the most difficult aspect to overcome.

The disadvantages of filing under Chapter 7 include:

•    Bad credit – your credit score will have decreased significantly and discharged debts will indicate that it was due to a bankruptcy filing.  This will stay on your record for 10 years.

•    Difficulty renting or buying property – landlords and mortgage lenders want to see a good credit history when you approach them.  Unless you can provide them with a large cash deposit or a trustworthy co-signer, you will have difficulty until your credit score has been raised.

•    Non-discharged debts – some debts are not wiped clean during bankruptcy and must still be paid once the process is complete.  These include items such as alimony, three years of back taxes, legal fines, etc.  School fees are often considered as non-dischargeable as it is very difficult to prove ‘undue hardship’.

•    Liquidation of assets – even if your state allows you to keep your car and property as essential items, you will still lose other items of personal value that may difficult if not impossible for you to replace once your finances have recovered.

•    Negative Stigma – it can be very difficult to declare bankruptcy as it is often seen as a failure.  It can be a big blow to a person’s self-esteem and some choose to seek counseling afterward.

The decision to file for personal bankruptcy is a difficult one and the pros and cons should be considered carefully before any paperwork is filed.  Consulting a reputable bankruptcy attorney would be a good first step as they would be able to discuss the process in detail with you and explain how you would personally benefit from it in your specific situation.  Most initial consultations are free of charge and offer a wealth of information to anyone interested in learning more about the pros and cons of Bankruptcy Chapter 7. Click on the following link for a free bankruptcy evaluation.

Click here to learn the answer to the question “Can you file Chapter 13 after Chapter 7?”

Do you have questions about filing under Chapter 13? Click on the following link to learn about life after bankruptcy Chapter 13.