Declaring bankruptcy is no doubt challenging. It affects your self-image, future credit, and overall reputation. However, it may also improve your quality of life in the short term as the letters and calls stop.
If you’re filing for Chapter 7 bankruptcy, you should weigh the pros and cons. Even though it’s one way to free yourself from financial obligations, it might not always be the best choice for you. So, to help you make a well-informed decision, it’s essential to consult a reliable bankruptcy attorney and other legal professionals.
Benefits Of Filing For Chapter 7 Bankruptcy
If done properly, filing for Chapter 7 bankruptcy can help you enjoy the following benefits:
- Debt Forgiveness
With Chapter 7 bankruptcy, you can quickly pay off creditors fairly or discharge your debt. In fact, many Chapter 7 bankruptcy cases only take less than a year to complete. Once you file for it, you’re not obliged to repay your qualifying debts. It’s because such debts will be wiped out completely. You can eliminate debts, such as personal loans, credit card balances, and other types of unsecured debt.
- Property Exemptions
Once you file for bankruptcy, it’s possible to retain your assets, especially those essential for your daily survival, such as a car used for commuting, furniture, clothes, and a family home. You may also hold onto some valuables less than a specific amount, enabling you to maintain and experience a comfortable lifestyle.
- Relief From Creditor Harassment
When you decide to pursue filing for Chapter 7 bankruptcy, you’ll experience relief from creditor harassment. The reason behind it is that the judge implements an automatic stay, which forces the creditors to stop repossessing your properties or contacting you. So, if you’re struggling with creditors calling you non-stop, Chapter 7 bankruptcy will put an end to it.
- No Wage Garnishment
When you’re under the protection of bankruptcy law, no creditors will be able to claim a part of your monthly income or wages. It means you can use your salary to pay for regular expenses and fulfill your basic necessities.
- Clean Slate Within Several Months
Most people prefer filing for Chapter 7 bankruptcy because it resolves financial issues within several months. For this reason, achieving a clean slate to build a brighter future and experience immediate debt relief is possible. On the other hand, filing for Chapter 13 bankruptcy will enroll you into debt payment plans that last up to five years.
Drawbacks Of Filing For Chapter 7 Bankruptcy
While filing for Chapter 7 bankruptcy has several benefits, it also has some drawbacks that you should be aware of, and these include the following:
- Not All Debts Will Be Discharged
Depending on your case, you may be unable to escape all your debts. Particular debts may remain on your account once you file for Chapter 7 bankruptcy. You’ll still be responsible for child support and alimony. Personal injury debts, student loans, and tax liens are also not covered.
- Take A Toll On Your Credit
Filing for Chapter 7 bankruptcy can affect your credit report for many years. For this reason, it’ll make it challenging to apply for credit, which means you might need to hold off on big purchases. Returning to school, buying a house, or applying for a credit card can become difficult after you file. However, all of these effects are temporary.
- Loss Of Property
Chapter 7 bankruptcy provides for liquidation, which involves the sale of debtors’ non-exempt property and distributing the proceeds to the creditors. Non-exempt properties are things you won’t need to get by, such as luxury items. If you have a vacation home or a second car, you might also lose them.
However, exemptions may vary from one state to another. Check your state’s laws to know what qualifies as exempt and non-exempt.
- Potential Costs Involved
There’s a case fee and some administrative fees that you need to pay once you file for Chapter 7 bankruptcy. However, you can pay such fees in installments if you have a tight budget. Just remember that the last installment should be made three months after filing for bankruptcy.
- Income Limits
Not all people who are struggling with debts have the option to file for Chapter 7 bankruptcy. If you don’t pass the means test, which evaluates your income for the six months before filing, you won’t be able to file for Chapter 7. So, if your monthly income is above the median and you still want to file for bankruptcy, you can file for Chapter 13 instead.
Bottom Line
The decision of whether or not to file for Chapter 7 bankruptcy is never easy and often involves complicated considerations. So, make sure to weigh the above benefits and drawbacks to make a smart decision. If you’re still confused about what to consider, never hesitate to consult a legal professional who can discuss other possible ways to help you deal with your financial troubles.
