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Pros & Cons of Filing a Chapter 7 Bankruptcy

If you are experiencing crushing debt and you are now considering filing Chapter 7 bankruptcy, you’ll want to do your research before you make a decision. One aspect of your research should be weighing the pros and cons of filing a Chapter 7. If the pros outweigh the cons, it may be in your best interests to file a Chapter 7, especially if you’ll be on your way to a financial fresh start much faster than if you decided to do nothing. If you feel the disadvantages of a Chapter 7 make it not worth it for you, perhaps you should consider an alternative, such as a Chapter 13 bankruptcy.

Chapter 7: Advantages vs. Disadvantages

With a Chapter 7 bankruptcy, the debtor’s qualifying, unsecured debts are discharged or “wiped out.” If the debtor has non-exempt assets, such as a vacation home, or a boat, they may be liquidated to pay off the debtor’s creditors. However, most Chapter 7s are called “no-asset bankruptcies” because the debtor does not have non-exempt assets to liquidate.

Cons of a Chapter 7 Bankruptcy:

  • Child support, spousal support, court-ordered fines, and victim restitution cannot be included in a Chapter 7 bankruptcy.
  • Unlike a Chapter 13, a debtor’s home cannot be saved from foreclosure.
  • The Chapter 7 remains on the debtor’s credit for 10 years.
  • Credit cards and auto loans will likely come with high interest rates in the first couple years after a bankruptcy.

Pros of Filing a Chapter 7 Bankruptcy:

  • The bankruptcy can discharge all kinds of unsecured debts, including credit card debt, taxes of a certain age, medical debt, and personal loans.
  • Usually, from start to finish the bankruptcy can be wrapped up within six months, giving the debtor a clean slate quickly.
  • As soon as the bankruptcy is discharged, the debtor can start rebuilding their credit.
  • If the debtor works at it, he or she can rebuild their FICO score into the 700s within two or three years after a bankruptcy discharge.
  • Unlike a Chapter 13, where the debtor is placed on a 3 to 5-year repayment plan, everything the debtor earns after filing bankruptcy is theirs to keep.

Next: Chapter 13 Bankruptcy: Why Do It?

Is a Chapter 7 bankruptcy right for you? To explore your options, contact our firm to meet with a York Chapter 7 attorney.

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