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Chapter 7 bankruptcy pros and cons

On Behalf of | Mar 4, 2024 | Chapter 7 Bankruptcy

Chapter 7 bankruptcy is generally considered to be a fresh start for a filer. This is because your obligations are discharged under Chapter 7, which means that repayment of eligible debts during bankruptcy is not required like it is during Chapter 13.

Bankruptcy is designed to help individuals overcome financial difficulties and start afresh. It should be perceived as a solution rather than a failure. The U.S. court system reports that most people who file Chapter 7 keep their home, house and entire asset portfolio after filing, as long as they continue to make on-time debt payments moving forward.

The pros and cons

Filing for Chapter 7 bankruptcy offers several advantages or “pros” for individuals who are buried in debt with no way out. These include:

  • Debt relief. As mentioned above, Filers under Chapter 7 do not usually forfeit any property since their assets are shielded by exemptions. Only a tiny fraction of filers risk the sale of their non-exempt property.
  • Debt collections cease immediately upon filing, which means those harassing phone calls and emails will stop.
  • You can start working to restore your credit and raise your credit score right away after filing. Pursuing a secured credit card is a good way to start rebuilding your credit.

There are also some disadvantages or “cons” to filing for Chapter 7 bankruptcy. For example:

  • Your credit score will be negatively affected. However, by making payments for your car, home and open credit cards, you can improve your score over time.
  • Some debts will still be attached to your account. You will still be responsible for paying child support and alimony, for example, and student loans and tax liens cannot be discharged.

There are many things to consider when filing for bankruptcy. Therefore, it makes sense to seek assistance with the process as proactively as possible.