A Chapter 7 bankruptcy allows the debtor to discharge his debts and start over. While the process can often be humiliating, it is generally for good reasons that should not embarrass debtors. People file bankruptcy because they lose a job, have high medical bills, their home is devalued due to the economy, lack of proper educational training, family problems, and for other reasons. All of these reasons, with bad luck, can happen to almost anyone.
Sometimes simply telling creditors that you are contemplating Chapter 7 bankruptcy, especially if you hire a bankruptcy attorney, can help persuade stubborn creditors to make more reasonable settlement offers. When you can’t reach an agreement, here are some of the pros and cons of filing a Chapter 7.
Advantages of filing a Chapter 7 bankruptcy
Quick process: Filing a Chapter 7 requires you to take an approved credit counseling course, file a petition, and attend a meeting of creditors. If all goes well, which means that creditors do not file objections, the whole process takes about six (6) months. After six months, the debtor will normally be discharged from the debts that he presented in the bankruptcy application. There is no wasted time trying to make long-term payments. Most creditors do not object.
Less expensive: The process is less expensive than filing a Chapter 13 or extensive debt counseling. The main costs are the administrative costs and the costs of your bankruptcy attorney.
The attorney is paid to review your financial affairs, make sure the petition has all the necessary information, address all issues raised by creditors and trustees, attend the creditors’ meeting with you, and make sure the discharge is carried out.
The attorney will also explain your options after bankruptcy, such as the steps you can take to get your credit back.
Debts are discharged: This means that you will not owe money to the debtors. You can focus on earning more income and using the money you earn / earn to pay the necessary bills.
Creditors and collection agencies cannot pursue you for these debts because you will no longer owe them. Discharged debts are your chance to start over.
You can reaffirm debts: If you have a car or an asset that you really want to save, you may be able to enter into a reaffirmation agreement.
This arrangement means that you will keep your car (or other asset) but continue to pay the monthly payments and pay the arrears as well.
Reaffirmation agreements are generally only used for obligations where the creditor has a security right in the item and you really need the item (such as a vehicle) to be able to function or work.
Fewer audiences: A Chapter 13 bankruptcy takes 3 to 5 years. It may also require hearings other than a meeting of creditors because creditors, especially those with a secured interest in the property, are more likely to take an active role in monitoring or verifying your plan to pay off your debts.
Also, Chapter 13 requires you to work with a trustee for 3 to 5 years. A Chapter 7 bankruptcy is usually just a hearing – a meeting of creditors. The meeting usually lasts a very short time.
However salary: Because your debts are being discharged, creditors generally have no right to garnish your wages because you do not owe the money.
Cons of filing for Chapter 7 bankruptcy
Filing for bankruptcy damages your credit and means that you may lose some of your assets. Before filing for Chapter 7 bankruptcy, debtors will want to explore debt settlement and debt counseling options to see if there is any way to avoid filing for formal bankruptcy.
Debtors will want to consider Chapter 13 if they have a home or because they want to save and Chapter 7 is not an option.
Here are some of the top reasons debtors will want to avoid filing for Chapter 7 bankruptcy:
Personal embarrassment: Bankruptcy can be a humiliating process. Most people who apply have good reasons for doing so, but still feel there is a social stigma about filing. They are concerned that family, friends, neighbors, and co-workers will find out that they filed, and this can make many people quite uncomfortable. My general advice in this department would be not to worry at all, as it is rarely discovered.
You can’t save your home: The main concern most debtors have is where they will live. If they own a home and their exemptions are not enough to save it, then the home will have to be sold and the debtor will have to find a new place to live.
You cannot keep your car and other insured assets: As with a home, anyone who has a collateral in their car, tools, or other assets will want to try to get their money back.
The way they do it is by getting your warranty back and selling it. If you are unable to enter into a reaffirmation agreement and your car or asset is worth more than the exemptions you have, you will lose the car / asset.
In the end, you will have to accept the pros and cons of Chapter 7, but the end result of a new beginning substantially outweighs the cons, as you will be in a position to get your life and finances in order. .