Benefits and Drawbacks of Chapter 7 Bankruptcy
Benefits of Chapter 7:
1. Most Chapter 7 cases are completed within 3-6 months.
2. Chapter 7 can help stop creditors from harassing you. Once your bankruptcy case is filed, an automatic stay is placed on all collection activities by creditors. This means that creditors are no longer allowed to contact you to try to collect your debt. The bankruptcy court will determine how much, if anything, the creditors will be paid.
3. There is no limit on the amount of debt that can be wiped out (discharged) by Chapter 7. Chapter 7 can provide you with a fresh financial start by eliminating your credit card debt, medical bills, most personal loans, some types of judgments resulting from civil lawsuits, and deficiencies on repossessed vehicles. (However, there are some types of debt, such as child support, recent back taxes, and school loans, which cannot be discharged.)
4. Chapter 7 allows certain property to be claimed as exempt, which means that it is not available to creditors to repay your debts. In most cases, you can keep your house, car, and personal belongings (as long your mortgage and car payments are brought to current status).
5. After your case is completed, most if not all of your debt will be discharged. You will be able to live debt-free, except for mortgages and car payments (if you keep your house or car) and some special types of debts that cannot be wiped out. You keep all of the wages you earn from working after filing for bankruptcy.
6. Because you will be free of all debts that are discharged, once your case is completed, you will be able to begin rebuilding your credit.
Drawbacks to Chapter 7:
1. There are caps on the amounts of property that can be claimed exempt. You may not be able to keep all of your property if you own many high-value possessions. Property that is not exempt may be sold by the bankruptcy trustee and the money will be given to your creditors to repay your debt.
2. Foreclosure of your home may be delayed temporarily, but cannot be stopped. Once a bankruptcy petition is filed, the court will order an automatic stay. This means that creditors must immediately stop all collection activities. Foreclosure activities will be postponed while your bankruptcy is pending—usually for 3-4 months. However, under limited circumstances, the court may allow your lender to move forward with the foreclosure sale if the lender makes a successful motion for relief from automatic stay.
3. If you have loans or debts where you used a co-signer, creditors may still collect the debt from your co-signer.
4. Some debt cannot be discharged at all in bankruptcy. This includes certain taxes that are less than 2 years old, domestic support obligations such as alimony and child support, debts for judgments in wrongful death or drunk driving cases, court fines, criminal restitution, and student loans. Also, if you choose to keep a home or car, the debt will not be discharged since you are keeping the asset. Your bankruptcy attorney can tell you if any of your debts are non-dischargeable.
5. You cannot receive a discharge in your Chapter 7 case if you have already received a Chapter 7 discharge within the past 8 years, or a Chapter 13 discharge within the past 6 years.
Your attorney can further assist you in deciding whether Chapter 7 is right for your individual financial situation.
Call San Diego Law Firm for Bankruptcy Help
Deciding whether to file bankruptcy is an important decision that affects your financial future. An experienced bankruptcy attorney can assist you in making the decision that is best for your financial situation. Schedule a free consultation to get your bankruptcy questions answered.
- We’ll perform a complete financial analysis of your debts, income, and property.
- We’ll develop a plan of action tailored to your specific financial situation.
- We’ll provide clear and knowledgeable support throughout the process of your case.
How to Contact San Diego Law Firm
We handle matters throughout California, and new clients are always welcome. For more information or to make an appointment, please contact us either by:
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