Chapter 7 bankruptcy is also called the ‘fresh start’ bankruptcy. If you are drowning under a pile of debt, this may be a viable solution to help you get back on your feet.
While it’s true that some debts such as child support, tax bills, and student loans cannot be eliminated through Chapter 7 bankruptcy, other bills such as medical bills, large utility bills, and credit card bills are eligible for dismissal.
The pros of Chapter 7 bankruptcy
The good news is that filing bankruptcy gives you a powerful tool that may even help you negotiate mortgage relief or a lower car payment. As soon as you file, creditors are required to stop contacting you. That means no more harassing phone calls and piles of bills. The court will analyze any assets you had at the time of filing and work with you, the banks, and other creditors to reach an agreeable outcome. Any assets that you attained after filing bankruptcy will not be a part of the proceedings.
The cons of Chapter 7 bankruptcy
Chapter 7 is a liquidation bankruptcy. For a very few people, that may mean letting go of some of their extra assets — like vacation property or art collections — in order to repay some of their debts. It also cannot totally prevent you from losing your home or car, if your finances won’t allow you to make the regular payments or you’re deeply in arrears.
If you have co-signers on any of your debts, they may become responsible for those bills once you file bankruptcy. Plus, you may not be permitted to repay loans that you took from family members (because they would be treated as any other creditor).
How do I know if Chapter 7 bankruptcy is right for me?
Filing for bankruptcy is a big decision that you shouldn’t have to make alone. The wisest thing you can do is learn more about your legal options for debt relief and see how each applies to your situation.