Pros And Cons Of Using Chapter 7 For Debt-Relief Purposes

Posted on: 10 October 2018

Many people end up with financial problems, but most of these individuals will look into all other types of debt-relief programs before turning to bankruptcy. People look for alternatives, simply because there are a lot of options to choose from and because bankruptcy has some negative effects. Chapter 7 bankruptcy also offers a lot of benefits too, though. If you are in a situation where you cannot pay your debts off and are now having trouble paying your regular bills, you should examine both the pros and cons of using Chapter 7 bankruptcy for help with your debt problems.

The Pros

Chapter 7 bankruptcy differs from Chapter 13, which is the other common option people use, in several ways. The main difference, though, is that Chapter 7 does not require you to set up a repayment plan. Chapter 7 does not even require you to repay the debts that qualify for discharge. Instead, the court wipes out these debts, and you will never be responsible for them again. The discharge of qualifying debts is one of the main reasons people choose this branch of bankruptcy.

Another benefit of Chapter 7 is that it is much faster to go through than Chapter 13. When you file for bankruptcy, you will likely receive your discharge in the case within five months. Now, there are times it takes longer than this, but there are also times when the discharge occurs faster than five months.

You should also know that you will not lose your house or car in Chapter 7 as long as you are current on the payments and work out a reaffirmation agreement with your lenders. If you are not current on these debts, there is a chance you could still keep them; however, it will depend on your unique case and situation.

The Cons

In addition to offering benefits, there are drawbacks of using Chapter 7 too. In other words, filing for Chapter 7 will have consequences. The first is the stigma that comes along with the word "bankruptcy." There is definitely a negative stigma with bankruptcy; however, you might be able to file without anyone ever finding out. Therefore, you should not be too concerned about this if you really need to file for bankruptcy.

The second consequence of filing is that you might not qualify for this branch due to the amount of income you earn. If you do not qualify because of your income, you could choose a different branch of bankruptcy, such as Chapter 13. Chapter 13 is a lot different than Chapter 7, though, so you should make sure you fully understand how it will work before agreeing to use Chapter 13.

You also face the consequence of the effects bankruptcy has on credit. After the bankruptcy posting hits your credit report, it will remain there for the next decade. While it may not affect your ability to get credit for the entire 10 years, it will make it much harder for you to get lines of credit and loans during the first year or two.

It's also important to weigh the pros against the cons before you file, simply to make sure you are receiving more benefits from filing than drawbacks from it. If you find that filing for bankruptcy will be extremely helpful to you in your situation, talk to a lawyer to find out more information.

Before you choose bankruptcy for debt-relief purposes, make sure you fully understand how it will affect your current financial situation and your future. If you would like a free consultation visit, contact a bankruptcy law firm, such as Phoenix Law, in your city today.