Chapter 7 Bankruptcy: Pros and Cons

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When deciding to file for bankruptcy, one of the most common types – along with Chapter 13 bankruptcy – is Chapter 7. During Chapter 7 bankruptcy while you might need to liquidate some of your assets, you can discharge most of your debts to get a fresh start. You have to have an income under a certain level to take advantage of this bankruptcy option, although the actual amount you can make is typically much higher than you may expect.

Like all forms of bankruptcy, there are advantages and disadvantages to filing for Chapter 7. Take a look at some of the pros and cons.

Advantages of Chapter 7

Some of the advantages of filing for Chapter 7 bankruptcy can include:

  • The timeline for the bankruptcy process under Chapter 7 is fairly short, usually taking around 3 to 6 months. This is much shorter than under Chapter 13, where a repayment plan can take 3 to 5 years to resolve.
  • You may be able to obtain new lines of credit within one to three years of filing Chapter 7. Often times, you can obtain new lines of credit shortly after filing bankruptcy and before the bankruptcy has completed.
  • While a Chapter 7 bankruptcy will impact your credit score, it can be more negatively impacted by defaulting on payments, having assets repossessed, and potential lawsuits. Those items can be more difficult to explain to potential lenders than a bankruptcy.
  • Most Chapter 7 filers keep all or most most of their belongings. The court will not take and sell off items that are deemed necessary to live your daily life or to work. Your bankruptcy attorney can help you retain most of your property during bankruptcy. Some items you can typically mark exempt are your vehicle (though you should be prepared to be reasonable – for instance, – no Ferrari’s), clothing, work equipment, household goods and appliances, furniture, and other items that can be considered necessary.
  • Filing for bankruptcy can prevent your creditors from attempting to collect the debt you owe throughout your proceedings. This will end harassing phone calls, threatening letters, wage garnishments, and other means they are using to collect.
  • You don’t have to have debts tallying a certain amount to file for Chapter 7 bankruptcy, though you wouldn’t file bankruptcy if you only debt is for $1,000.00 to a credit card. The actual amount of debt that makes sense to consider filing a bankruptcy is different for every person. The attorney can help you wade through this decision.

 Disadvantages of Chapter 7

While there are a lot of pros to filing for Chapter 7 bankruptcy, there are also some disadvantages. Some of the cons to consider are:

  • A Chapter 7 bankruptcy can stay on your credit report for a long time, potentially up to 10 years. Do know, however, you can typically recover your actual credit score in 18-24 months after filing and FHA home loans can be obtained after 24 months for some debtors.
  • Under Chapter 7, you may have to liquidate assets that are not marked exempt. This can cause you to lose some of your stuff, including some valuable jewelry, collectibles, and other luxury items. A bankruptcy attorney can help you try to keep most of your assets, so it’s important to work with your lawyer when identifying your exempt property.
  • You may lose your credit cards you want to keep.
  • If you don’t already have a mortgage, it can be very difficult to qualify for a new one with a Chapter 7 bankruptcy on your record for a minimum of two years. ·
  • Chapter 7 bankruptcy will not eliminate all of your debt. Some types of debt that will not be discharged are child support, spousal support, and student loans.
  • You have to wait a certain amount of time if you filed another bankruptcy within the last 4-8 to qualify again for Chapter 7. In some cases, you can overcome this by filing a ‘stealth’ chapter 7 through the Chapter 13 process.
  • You will need to take a means test to prove your income. To file for Chapter 7, your income must be under a certain threshold given your income, family size, and geographic location. If you don’t pass the test, you may need to look at filing for Chapter 13 instead, where you will create a repayment plan to pay off your debt.

Let Us Help You

When you’re considering filing for Chapter 7 bankruptcy, let our lawyers at The Law Offices of Alexzander C.J. Adams, P.C. help you sort through your options. We work for you, the people, and not institutions. Contact us for a free case evaluation, or no-obligation consultation. We are dedicated to helping you overcome this small bump in the road and assisting you to get on with your life.

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