The Pros and Cons of Chapter 7 Bankruptcy
Chapter 7 Bankruptcy is often seen as a “do or die” choice for individuals and businesses that have found themselves in an unfortunate financial situation.
The reality is that anybody can recover from a bankruptcy filing. After a bankruptcy, a person can still get credit cards, car loans, and even home loans. It’s important to know the basics of Chapter 7 Bankruptcy and how it works.
Though the best solution to most people’s money problems is to avoid them in the first place, sometimes things happen that leave you with no other choice but to file for bankruptcy.
You may be discouraged to find that filing for bankruptcy can have some serious consequences that you never intended.
Moreover, the stress figuring out what to do with your life after bankruptcy is much less difficult than figuring out how to tell your friends and family that you are in a financial situation that has gotten so bad that you needed to file for bankruptcy.
Thankfully, there are a lot of things you can do to minimize the drawbacks of bankruptcy. Including keeping your bankruptcy to yourself.
Upsides of Filing Chapter 7 Bankruptcy
The most obvious upside of filing chapter 7 bankruptcy is that it stops creditors from garnishing your wages or repossessing your car or furniture. But it doesn’t just stop there.
You can discharge (get rid of) most of your debts including credit cards, medical bills, personal loans, and some back taxes. You can also keep your car, assuming you can make the payments.
Following are some other upsides of Chapter & bankruptcy.
Immediate Relief from Creditors Trying to Collect from You
Filing Chapter 7 Bankruptcy is a way to get relief from collectors and secure a fresh financial start.
Under bankruptcy law, your creditors cannot call you or send threatening letters. This includes threatening to notify employers or family members.
In Chapter 7, your unsecured debt (like credit card bills and medical bills) gets wiped out, and you keep some of your assets (like your car).
Moreover, your assets will be protected, and you won’t have to worry about losing your car or your retirement.
As a result of Chapter 7 bankruptcy, you will receive a discharge of debt. This will take care of unsecured debt and help recover with your finances.
An individual bankruptcy cancels his or her debts incurred in unprotected transactions, such as credit card debt, medical debt, and other loans.
A bankruptcy discharge releases you from the legal obligation to pay certain debts, but it doesn’t wipe out your obligation to pay secured debts, like the mortgage on your house or car loan payments.
However, it may be possible to persuade your secured creditors to accept a settlement for the amount owed, instead of repossessing your property.
There Is a Good Chance You Can Keep Your Car and Other Belongings
If you file Chapter 7 Bankruptcy, there is a good chance you can keep your car and other belongings. This is because vehicle exemptions are based on your state’s exemption amounts.
Each state has different exemption requirement amounts. You can also exempt certain belongings, but make sure to know your state’s exemptions before you do this.
There are also many different rules that go along with Chapter 7 Bankruptcy. It is vital that you are educated on your state’s bankruptcy rules.
If You Have Filed for Bankruptcy, Missing Monthly Payments and Negative Marks Stop Affecting Your Credit Score
When a bankruptcy is discharged, all of the negative marks on your credit report will be removed, including late payments, foreclosures, and tax liens, as long as they occurred fewer than ten years before the bankruptcy filing date.
If you are considering filing for bankruptcy, you can expect to see a dramatic improvement in your credit score if the bankruptcy is discharged in less than ten years.
Unlike other debt solutions, Chapter 7 eliminates your debts completely, instead of merely reducing them. When you file Chapter 7, you receive a clean financial slate with no negative marks on your credit report.
Improved Access to Credit and Banking
Filing bankruptcy is a scary process, but the relief of not having to pay your debts can be empowering. It can help alleviate one’s biggest fear, that of being denied access to credit and banking. This doesn’t have to be the case.
Bankruptcy doesn’t have to reduce your access to credit and banking. Instead, it can improve your access to banking and credit.
In a bankruptcy, you can legally wipe out your unsecured debt, such as credit card bills and medical bills.
In a nutshell, it’s a process that has the potential to improve your credit score, bank and credit union access, and overall financial health.
Cons of Filing Chapter 7 Bankruptcy
Chapter 7 Bankruptcy is a legal procedure that allows people with exceptionally large debts to erase those debts without having to pay some or all of them back.
However, the biggest cons to filing for Chapter 7 Bankruptcy are the lasting negative effects it can have on many areas of your life.
If You Have Good Credit, It Will Likely Take a Temporary Hit
The good news is that if you have an excellent credit score, you still won’t have to deal with a “hit” to your credit score for long.
Any bankruptcy filing will stay on your credit report for up to 10 years. If you want to soften the hit to your score, you’ll need to begin repairing your credit score. For example, you can take out a personal loan or open a new credit card to build up your score after you file for bankruptcy.
Chapter 7 bankruptcy is a type of bankruptcy that does not wipe out all debt, for example student loans will survive the bankruptcy. A Chapter 7 is also known as a “liquidation bankruptcy” because it involves selling assets to pay off creditors. There are certain things you can keep, including your car and other property, and your retirement accounts. You will not be able to qualify for a mortgage for at least two years, however, and you’ll need to file a chapter 7 bankruptcy means test.
You Will Still Owe Back Taxes When Filing Chapter 7 Bankruptcy
When you file for Chapter 7 Bankruptcy, you get rid of most unsecured debts like credit cards, medical bills, personal loans, and payday loans.
But, what if you owe money to the IRS, or to your state? People often confuse bankruptcy for being a “get out of debt free card,” but that is not the case.
If you owe back taxes, you may still be required to pay them after a bankruptcy filing. Some states allow you to discharge certain taxes, but California does not. As well, if you need to pay child support, it is your responsibility. You will need an experienced attorney to get specific debts analyzed.
It can be hard for people to understand that just because they are filing bankruptcy, it doesn’t mean all their bills will instantly be erased. While most of their unsecured debt will be erased, they will still have to deal with secured debts such as their mortgage or car loan.
You May Lose Certain Types of Property
Chapter 7 bankruptcy is often a good option for those who have a lot of debt and few assets.
A few assets, like a car, require additional paperwork to keep.
The process is called “reaffirmation,” and if you file for Chapter 7 you must fill out a reaffirmation agreement that states that you are voluntarily keeping the property. If you do decide to reaffirm, you must abide by the terms of the agreement and pay back the debt as you promised.
It’s important to know the type of bankruptcy you want and what property may be lost when filing. Chapter 7 bankruptcies are best for those who can’t afford to pay off their debts because they don’t have many assets or a lot of income, while Chapter 13 is often better if you’re behind on your payments but would like time in order to make amends with creditors by turning some money over now rather than having everything taken from them later.
You Can’t File Chapter 7 if You Make Too Much Money
If your family’s monthly income is less than the median income for a similar sized family in California, then you are eligible for Chapter 7 bankruptcy.
If your monthly income is higher than a family of the same size, you may still be able to file Chapter 13 bankruptcy. Chapter 13 bankruptcy is a chance to start over with a clean slate and reorganized bills.
Any type of bankruptcy filing is serious and will have a long-lasting effect on your credit score. It is important to speak with a qualified attorney before making any decisions about which type of bankruptcy best suits your needs.
Contact Eh Law Group for Expert Bankruptcy Advice
When you need legal bankruptcy advice, contact EH Law Group. If you are considering filing for bankruptcy, it is important to understand the process and what a Bankruptcy Code can mean for your financial future. The Bankruptcy Code can be very complicated. Because of this, there are many misconceptions about bankruptcy and the rules that apply.
When you need legal bankruptcy advice, contact the EH Law Group. We are experts in Chapter 7 and Chapter 13 bankruptcy law. Our team of experienced bankruptcy attorneys can answer your questions and guide you through the process to help minimize stress while maximizing opportunities for a fresh start.