There's no question that deciding whether to declare bankruptcy is very difficult. It affects your future credit, your reputation and your self-image. It can also improve your short-term quality of life considerably, as the calls and letters stop. Taken as a whole, it's a difficult process with both advantages and disadvantages. Chapter 7 bankruptcy, in particular, will damage your credit for a little while but also may provide much-needed relief and a roadmap for getting your financial house back in order.
The following list of Chapter 7 bankruptcy advantages and disadvantages will help you decide the best option for your needs.
Disadvantages of Chapter 7 Advantages of Chapter 7 Bankruptcy will ruin your credit for some time to come. A Chapter 7 bankruptcy can remain on your credit report for up to 10 years. Although a bankruptcy stays on your record for years, the time to complete the bankruptcy process under Chapter 7, from filing to relief from debt, takes only about 3-6 months. If you decide against Chapter 7 when it may be the right decision for you, your missed debt payments, defaults, repossessions, and lawsuits will also hurt your credit, and may be more complicated to explain to a future lender than bankruptcy. You'll lose property that you own that is not exempt from sale by the bankruptcy trustee. You may lose some of your luxury possessions. Most state exemptions allow you enough so that most things you own will be exempt from bankruptcy, sometimes allowing more coverage to keep your property than you need. Additionally, you'll get to keep the salary or wages you earn and the property you buy after you file for Chapter 7. You'll lose all your credit cards. You may also be able to obtain new lines of credit within one to three years of filing bankruptcy, although at a much higher interest rate. Bankruptcy will make it nearly impossible to get a mortgage, if you don't already have one There are lenders who specialize in lending to "bad risks," although that's an unfair characterization to make of someone who has taken a major step to solve financial difficulties. Declaring bankruptcy now might make it harder to do later if something worse comes along. For instance, if you complete the bankruptcy process under Chapter 7, you can't file for another Chapter 7 bankruptcy for six years. The six years is counted from the date you last filed for bankruptcy. Although, you can only file under Chapter 7 once every six years, you can always get a Chapter 13 plan if there's another disaster before you're entitled to file for Chapter 7 again. You may file for a Chapter 13 plan repeatedly, although each filing appears on your credit record. Bankruptcy won't relieve you of your obligations to pay alimony and/or child support. Bankruptcy will alleviate many of your other financial obligations, but only a family court order can suspend alimony and child support obligations. Bankruptcy won't get rid of your student loan debt. Bankruptcy will prevent your lenders from aggressive collection action. You'll have to explain to a judge or trustee how you got into a financial mess. Both judges and trustees have heard far worse stories than yours. You can't file for Chapter 7 bankruptcy if you previously went through bankruptcy proceedings under Chapter 7 or Chapter 13 within the last six years. If you obtained a Chapter 13 discharge in good faith after paying at least 70% of your unsecured debts, the six-year bar does not apply.You cannot file for Chapter 7 bankruptcy if a previous Chapter 7 or Chapter 13 case was dismissed within the past 180 days because:
The choice to seek bankruptcy involves many complicated considerations, while there are advantages and disadvantages of Chapter 7. You'll want to take into consideration whether you can avoid bankruptcy altogether or how to preserve valuable assets if a bankruptcy is absolutely necessary. Contact a local bankruptcy attorney who can discuss ways the law can help you address your financial troubles.
