When it comes to debt options in the US, Chapter 7 bankruptcy is one of the most powerful ways to relieve debt. It aids consumers in getting out of poverty, and you'll come out of your bankruptcy hearing with a clean slate. However, you'll need an expert bankruptcy attorney to assist you if you want the best possible outcome.
You need to take a long look at the pros and cons of filing for bankruptcy before you make the leap. It's a highly personal decision that requires you to evaluate whether it's really the best option for you.
The Pros of Filing Chapter 7
1. Your Relief Will Be Immediate
You'll be protected from creditors from the moment you file your case with the bankruptcy court. Filing will trigger a stay (or stop) automatically, and all collection actions will cease. Collection letters, garnishments, and phone calls from collectors will all stop. Foreclosures, evictions, and repossessions will also stop, at least on a temporary basis.
2. Your Debts Will Be Cleared
Filing for bankruptcy—specifically Chapter 7—will wipe out almost all types of debt that you've accumulated throughout your life. Personal loans, medical bills, and credit card debt are included. You no longer have an obligation to pay these debts when you're granted a bankruptcy discharge by the bankruptcy court.
3. Your Discharge Is Almost Guaranteed
If you pass the means test and have never filed for bankruptcy before, then getting your bankruptcy discharge is almost guaranteed. You'll need to be honest in your dealings, and you'll require a highly trained and experienced attorney to assist you, too. If you do everything right and meet all of the requirements, then you may get your discharge in only three months. The process is basically automatic once all of the requirements are met.
4. Your Belongings Will Still Be Yours
Around 95% of Chapter 7s filed in the US let the person filing keep all or most of their belongings. You'll get to keep everything from your social security check to your pricey furniture. However, the items you get to keep will need to be protected by an exception for this to take place.
You even get to keep your car if you want to. Your obligation to pay your car payments will stay with you if you choose to keep the car, but you also have the choice of giving up your car and the payments with it.
5. Your Missed Monthly Payments Won't Impact You
If you've missed monthly payments in the past, or if there are any other negative marks on your credit report, then they won't impact your new credit score. You get a clean slate after filing for Chapter 7, so you can rebuild your credit from the ground up. In fact, the majority of people find that their credit score ends up far better than it was before they filed for Chapter 7.
While filing for bankruptcy can feel like a major downfall, in reality, filing can actually improve your finances. If you make sure to use your clean slate wisely, then you can build a far more successful future and forget your credit troubles of the past.
6. Your Access to Banking and Credit Will Improve
You'll find that you have more offers for credit cards after you file for bankruptcy. This will help you rebuild your credit score, and it ensures you have access to a credit card in the case of an emergency.
The Cons of Filing Chapter 7
1. You'll Be Unable to File if You Earn Too Much Money
If you can put money into savings after paying your living expenses, then you earn too much money to qualify for Chapter 7. You need to be earning less than the median income. You're not eligible to be cleared of your debts if you have too much disposable income. However, if you complete a Chapter 13 repayment plan, then you can file for Chapter 7 even if your income is too high.
2. You'll Take a Hit on Your Credit
If you've had a good credit score up until now, then that score is going to drop after you file for Chapter 7. However, in the long run, filing for bankruptcy often does more good than it does harm to your credit score. You can start increasing your credit score as soon as your bankruptcy discharge is granted.
As stated earlier, you'll get lots of credit card offers after you file, so you'll be able to rebuild your score quickly. It's only the initial hit that's a major downside to the process of filing for Chapter 7.
3. You'll Still Have Some Debt
Child support, alimony, student loans, and tax debts are difficult to eliminate by filing for Chapter 7. If you thought you'd be free of all debt for the rest of your life, then think again, because there are many types of unsecured debt that still remain.
4. You'll Possibly Lose Some of Your Property
You may be able to keep most of your personal belongings when you file, but you might not be able to keep absolutely everything you own. What you can keep varies from case to case, and there are some types of property that you can sell to pay creditors.
Speaking to your attorney about this will be your best bet at determining whether or not your property is protected in a Chapter 7 case. If it's not, then a Chapter 13 bankruptcy is most likely the best option for relieving your debt.
5. You'll Protect Yourself But Not Others
If you have shared debt, then the person you share it with will still have to pay it back. For example, if you have several loans that you and your spouse are paying back, then if you file you'll be the only one that the bankruptcy case applies to. Your spouse will still have to pay back every cent of the debt unless you file for Chapter 13 bankruptcy.
Chapter 13 will protect a cosigner, but it's still not a perfect option. Chapter 13 bankruptcy only works because the debt is paid back anyway through your repayment plan. Therefore, Chapter 7 is only an option if all of your debt is your own.
Do You Need a Bankruptcy Attorney for Chapter 7 Bankruptcy?
It's legal for an individual to file for bankruptcy without the help of an attorney, but it's not the best option. You should always seek counsel from a qualified and experienced attorney. There are long-term legal and financial outcomes to bankruptcy, and you'll need the guidance of an expert in the field.
Can Someone Else in the Courtroom Advise on the Case?
Unfortunately, you can't seek advice from another party in the courtroom. The judge and court employees are legally prohibited from offering you advice. If you want your bankruptcy hearing and future to go well after you file, then you'll need an attorney to help you. There are a lot of confusing aspects of a bankruptcy case and the time that follows it, and you'll need someone who's fighting your corner and wants to help you throughout it.
