The phrase “filing for bankruptcy” might be the most terrifying in the financial vocabulary (perhaps next to “Great Recession” and “bank run”). However, if you’re contemplating this serious decision, then be assured if you move ahead that you won’t be alone. Each year, hundreds of thousands of people across the country file for Chapter 7 bankruptcy for a variety of reasons, such as excessive medical bills, job loss, divorce, over-investing in the stock market, the list goes on.
Naturally, this isn’t a decision that you can afford (figuratively and literally) to make based on raw emotion or overwhelming anxiety. Yes, being in serious is debt is scary. Actually, it’s terrifying; especially when creditors start closing in, and threats of wage garnishment and asset repossession start flying fast and furious. However, the essential thing to remember throughout this challenging time is that “filing for bankruptcy” is not a subjective condemnation, or an expression of financial failure. Indeed, some of the world’s most successful and important people have filed for bankruptcy, including Walt Disney and Abraham Lincoln.
Rather, bankruptcy it’s a form of legal protection that’s designed to protect you (that’s right, you), so that you can restructure and reorganize your debts and, eventually, regain your financial footing. While it’s obviously not a list of anyone’s favourite things, there’s no shame in filing for bankruptcy. It happens thousands of times a day.
The best — and frankly, the only — thing you can do right now is equip yourself with hard facts. To get you started in the right direction, here’s a rundown of some pros and cons of filing for Chapter 7 bankruptcy based on the advice of experienced bankruptcy attorney Charles Huber:
Chapter 7 Bankruptcy: PROS
- Unlike Chapter 13, Chapter 7 doesn’t involve a detailed repayment plan. Instead, a trustee sells non-exempt assets and uses the proceeds to pay creditors per the Bankruptcy Code.
- The process is faster than most people believe, and is usually over within 3-6 months.
- Most states have exceptions that prevent certain assets from being liquidated.
- Some filers may be allowed to keep more of their property than they need.
- Filers will be able to keep their salary and assets the purchase after filing for Chapter 7.
- Creditors must stop calling, email or communicating with debtors immediately after a Chapter 7 bankruptcy filing.
- Filers who’ve had wages garnished by creditors within 90 days immediately preceding a Chapter 7 filing may be allowed to get that money bank.
Chapter 7 Bankruptcy: CONS
- A Chapter 7 filing stays on a credit report for 10 years, and will doubtlessly make it tougher and more expensive to borrow funds, get a mortgage, or even get a job.
- Filers lose all of their credit cards, and any property that isn’t except from sale (including luxury items).
- Contrary to what many people believe, filing for Chapter 7 doesn’t except filers from child support payments, alimony obligations, or student loan payments.
The Bottom Line
Deciding to file for Chapter 7 isn’t easy — and that’s a good thing, because it’s something that should only be (possibly) done after careful research, which includes consulting with an experienced bankruptcy attorney.
However, regardless of how difficult things are right now or what has happened in the past, if starting now you do the right things, the right way, and at the right time, be assured that you’ll emerge financially stronger than ever — and will look back on this as a bump in the road vs. the end of the line.