The Pros and Cons of Chapter 7 Bankruptcy
Although Chapter 7 bankruptcy is often a debtor’s best option for getting his or her finances back in order, one should carefully assess its pros and cons prior to filing. Some of the negative consequences of filing for Chapter 7 bankruptcy include:
- Credit issues – A Chapter 7 bankruptcy filing remains on a debtor’s credit report for up to 10 years. In addition, debtors typically lose all of their credit cards after filing for bankruptcy.
- Loss of property – Any property that is not exempt from sale will be liquidated by the bankruptcy trustee.
- Some debts and financial liabilities may remain – While Chapter 7 bankruptcy eliminates many outstanding debts, certain financial liabilities survive bankruptcy. For example, mortgage liens, alimony and/or child support obligations, and student loan debts are not usually discharged in Chapter 7 bankruptcy.
- Conversion to Chapter 13 – Courts sometimes convert Chapter 7 bankruptcy to Chapter 13 when the filer earns a high amount of disposable income. Under Chapter 13, debtors are required to repay most outstanding debts over the course of 3 to 5 years.
- Mortgage problems – Bankruptcy makes it extremely difficult to obtain a mortgage, which means that a debtor may have to wait until the filing is removed from his or her credit report before attempting to obtain a home loan.
Despite the negative consequences described above, there are a number of positive reasons to consider filing for Chapter 7 bankruptcy, including:
- Saves time and avoids litigation – Although a bankruptcy stays on a debtor’s credit report for several years, the time to complete the bankruptcy process under Chapter 7 only takes a few months. In addition, bankruptcy provides a convenient way to avoid litigation, as most debts can be discharged under Chapter 7, thereby preventing lenders from filing actions in civil court.
- Prevents collections – As noted above, bankruptcy prevents lenders from partaking in aggressive collection efforts.
- Discharges most debts – With the exception of a few types of debt, the scope and type of debt that a bankruptcy court can discharge is practically unlimited. Examples of debts that are usually dischargeable include:
- Bad checks
- Auto accident claims
- Business debts
- Civil judgments
- Tax penalties
- Back taxes
- Attorney fees
- Charge accounts
- Social security overpayments
- Payday loans
- Personal loans
- Collection agency accounts
- Utility bills
New York Legal Representation
There are a number of factors that must be considered when deciding whether bankruptcy is the right decision for you, and it can be difficult to make this determination alone. Therefore, if you are considering filing for bankruptcy in New York, we recommend that you contact a bankruptcy attorney to discuss your unique situation. An experienced New York Chapter 7 or Chapter 13 bankruptcy attorney will keep you apprised of your rights while ensuring that you understand all of your debt relief options. Please contact us for a free consultation.