Bankruptcy Chapter 7 is often seen as the answer for individuals struggling with overwhelming debt. However, there’s a lot more to it than you might realize at first. Yes, this type of bankruptcy can serve as a fresh start. After all, it eradicates debt and stops collection actions against you. As such, it provides a way to regain control over your finances.
On the other hand, it also comes with consequences. For starters, you could lose your valuable assets. It can also affect your ability to borrow in the future. Most importantly, it can have a significant impact on credit score. Nonetheless, liquidation bankruptcy, as Chapter 7 bankruptcy is also called, is often the only viable option. But before you decide to file bankruptcy Chapter 7, you should review both the upsides and the risks of the process.
Things You Should Know About Chapter 7 Bankruptcy
Bankruptcy does offer fast relief from unmanageable debt. Yet, it’s not the best option for every situation.
That’s why talking to an experienced bankruptcy attorney is highly recommended before you move forward. They’ll review your specific case, advise you based on income, assets, and obligations, and show you how to file Chapter 7 bankruptcy if the option fits your needs.
Until you do that, the following breakdown of the pros and cons of this type of bankruptcy can serve as a guide:
Pros
The benefits of Chapter 7 bankruptcy include the following:
- Most unsecured debts are eliminated, which provides a fresh financial start.
- The process is relatively fast and typically takes three to six months.
- Once you file for bankruptcy, an automatic stay goes into effect and stops most collections, lawsuits, and wage garnishments against you.
- There’s no minimum debt amount required to declare bankruptcy.
- Most filers begin rebuilding their credit within one to three years.
- Some lenders offer second-chance financing options for people after bankruptcy.
- Income earned after filing isn’t subject to your bankruptcy case.
Cons
As you can imagine, there are also several disadvantages to the process. Here are the most common drawbacks of filing Chapter 7 bankruptcy:
Depending on your disposable income, your case might be converted from Chapter 7 to Chapter 13 bankruptcy.
- You can file for Chapter 7 bankruptcy once every six years.
- The bankruptcy can remain on your credit report for up to 10 years.
- All cards included in the filing will be closed, which will affect your credit score.
- Getting a home loan shortly after filing can be quite challenging.
- Domestic support obligations, such as alimony and child support, can’t be discharged.
- Student loans are very rarely discharged.
What Will I Lose if I File Chapter 7 Bankruptcy?
In a bankruptcy Chapter 7 case, you risk losing assets that don’t fall under California’s exemption limits. These typically include second and vacation homes, luxury vehicles, high-value collections, and investment accounts.
Talk to a Reputable Bankruptcy Lawyer Before Filing
If you’re considering declaring bankruptcy, SCLA’s experienced bankruptcy attorneys are at your disposal. We’ll attentively listen to your specific situation and discuss Chapter 7 eligibility requirements with you. You’ll receive an honest evaluation, and we’ll help you determine whether filing for bankruptcy is the right decision for you.
Keep in mind that the sooner you react, the better your options will be. So, don’t wait too long and contact us at 866-337-7220 to schedule a free consultation. We’re also available via email (info@socaladvocates.com) if calling doesn’t work for you.
