How Can Chapter 7 Bankruptcy Help You?
In 2016, over 490,000 people filed for Chapter 7 bankruptcy, making up around 62% of all bankruptcies filed that year. There are a number of different types of bankruptcy but Chapter 7 usually has the most benefits for many individuals.
Filing for bankruptcy is often seen as a negative thing but in many cases, filing Chapter 7 is a responsible way to handle debt. Our experienced bankruptcy attorney has helped thousands of individuals since 1988 to file bankruptcy and get a fresh start on life.
Understanding which type of bankruptcy to file comes down to what kinds of debts you have and what you want to gain from filing bankruptcy. For many that means filing a Chapter 7 is the option they’d prefer to take.
Most cases, the alternative is Chapter 13 bankruptcy, which has its own negatives and positives. We can help you figure out what’s most important to you and which bankruptcy to file in a free twenty-minute strategy session.
Advantages of Chapter 7 Bankruptcy
Chapter 7 is more common and faster than other kinds of bankruptcy. For most people in debt, the benefits outweigh the negatives of using Chapter 7.
- Here’s why: If you’re in over your head due to financial difficulties from unsecured debt, Chapter 7 bankruptcy allows you to liquidate your assets to cover your debt and have the remainder cleared.
- Another benefit of Chapter 7 bankruptcy is you receive immediate relief. Once you file your credit card debts, personal loans and other unsecured debts, all collection activity stops immediately. You’ll no longer get those demanding calls and collection letters. Wage garnishment will also cease.
- If you have a pending foreclosure, repossession or eviction, bankruptcy gives you a temporary break to get your head above water again.
- Bankruptcy filing is quick and guaranteed for most people. If you qualify and are honest with the bankruptcy trustee and bankruptcy court, your filing can go through in as little as three months.
- Most possessions fall under the category of an exempt asset, so you’ll get to keep your primary home and vehicle, pension and even jewelry up to a certain value. The nonexempt assets include automobiles, besides your primary vehicle, cash, stocks, second homes and vacation properties, to name a few examples.
- You can even keep a vehicle you’re still paying for, but you will need to pay off your auto loan.
Any negative marks on your credit report from the items you filed bankruptcy on will disappear.
You’re Debt Free After Chapter 7
Chapter 7 bankruptcy differs from Chapter 13 bankruptcy in many ways—but the most important for many people is that they no longer have to continue to pay after bankruptcy is over. Chapter 7 discharges debts, instead of creating a repayment plan, meaning that those that complete Chapter 7 start with a clean financial slate after it’s over. They also don’t have to keep paying for debts for years.
Chapter 7 is Fast
Once you file Chapter 7, you can be debt-free in as little as 100 days. Instead of repaying for years on debts like the typical Chapter 13 bankruptcy, Chapter 7 goes by quickly. For most people, it’s a process that helps them improve their situation, instead of digging the hole deeper. There’s hope at the end of about 4 months of bankruptcy proceedings.
You don’t have to talk to Creditors
Because debts are discharged completely, you don’t have to deal with your creditors again. During the bankruptcy proceeding, your attorney will often file a Stay that prevents creditors from contacting you throughout the process. Once Chapter 7 is complete, creditors can no longer call on debts that have been discharged.
You can get rid of unlimited debt
Although a Chapter 7 can’t discharge all types of debts, filing a Chapter 7 gets rid of any amount of debt of the kinds that can be discharged. Whether you’re facing debts in the thousands or hundreds of thousands, Chapter 7 can discharge most unsecured debt, such as credit card debt, personal loans, medical bills and other types of personal debt.
You may be able to keep your house or car
Can I keep my house or car with Chapter 7? In most cases, yes. Many people think you can’t keep your house or car in Chapter 7 but that’s not quite true. There are a number of exemptions you can take when filing Chapter 7 that can allow you to keep your house or car after bankruptcy is over. Every case is different, however, so consulting with an experienced bankruptcy attorney can help you better understand your situation.
You learn & grow
As part of pre-bankruptcy and pre-discharge, you’re required to take two financial courses to help you make a plan to manage your finances. For many people, they get access to information that helps them better manage their money and stay out of debt in the future. If you do it right, the bankruptcy process can be very educational and beneficial for your finances.
What Are the Cons of Chapter 7 Bankruptcy?
Chapter 7 isn’t the right kind of bankruptcy for every case and does come with disadvantages. Sometimes Chapter 13 is a better choice. Speaking with an attorney can help you decide whether the disadvantages outweigh the benefits in your situation.
For instance, if you have too much disposable income or have quite a hefty savings, you may not qualify. Having too much disposable income means you may have to look into Chapter 13 bankruptcy.
Your credit will usually take a temporary hit. But, once you have approval for a discharge of debts and your financial affairs are in order, you can start rebuilding your credit.
Here are some of the other potential disadvantages of filing Chapter 7 bankruptcy, and why they may not be as much of a problem as they may seem at first glance:
Chapter 7 remains on your credit for 10 years
It’s true that bankruptcy can hurt your credit score. But what’s worse—continuing to not make payments and continuing to ruin your credit for years or starting to rebuild after one big credit event? Instead of digging the hole deeper over time, Chapter 7 bankruptcy allows you to start rebuilding credit.
You lose your credit cards
As part of Chapter 7 you have to give up your credit cards. It doesn’t mean you can’t get credit cards in the future but it does mean you have to stop using them for a period of time. Chapter 7 requires you to change how you deal with your personal finances—but you’re not alone and have access to resources to help you as part of the Chapter 7 filing process.
You may not be able to get a mortgage
If you don’t already own a home, filing bankruptcy can make it more difficult to get a mortgage. Some lenders specifically lend to individuals who have filed bankruptcy in the past, so there’s less truth today in this disadvantage to Chapter 7 than there used to be.
You cannot file again for 8 years
Federal rules permit an individual to receive a discharge in a Chapter 7 bankruptcy once every 8 years. This prohibits you from filing another Chapter 7 bankruptcy case within 8 years of filing the first case.
It doesn’t work on all kinds of debt
Not everyone with debt can use Chapter 7, because it doesn’t work on all kinds of debt. Child support, alimony, and most Federal Income Tax debts can’t be discharged with Chapter 7.
Also, federal student loans are not automatically discharged by the bankruptcy discharge order. You’ll have to file a separate lawsuit known as an “adversary proceeding” in which you will need to prove that repaying those loans would impose an undue hardship on you and your dependents.
Ready to weigh your Bankruptcy Options?
We offer free twenty-minute strategy sessions to talk with our experienced bankruptcy law firm staff and figure out which bankruptcy filing option might be right for you and your individual situation. If you’re unsure if Chapter 7 is right for you, talking with our experienced bankruptcy lawyer may be able to help put you on the path to financial recovery.