The Cassidy Law Firm Blog

Monday, January 18, 2021

Advantages and Disadvantages of Chapter 7 Bankruptcy

Chapter 7 bankruptcy can provide filers with the potential to start with a metaphorical clean slate, financially speaking. As a powerful debt relief option, Chapter 7 bankruptcy can clear most, if not all, of a person’s outstanding debts. At the end of the day, however, filing bankruptcy is a highly personal decision. It is important for anyone considering bankruptcy to weigh the pros and cons before reaching a decision on whether or not to file.

The Advantages (and Disadvantages) of Chapter 7 Bankruptcy

One of the biggest advantages of Chapter 7 bankruptcy is the fact that filing will provide a person with immediate relief in the form of protection from collection efforts. When bankruptcy is filed, there is an automatic stay on creditor collection efforts, which means they come to a stop. Phone calls, garnishments, collection letters, as well as repossessions, evictions, and foreclosure actions come to a standstill. For a person facing financial strain, this can be a much needed time to take a deep breath.

Chapter 7 offers permanent debt relief through the discharging of eligible debts. In fact, Chapter 7 bankruptcy clears most kinds of debts. Some of the most common reasons for filing for bankruptcy include significant credit card debt and medical bills, both of which are dischargeable in bankruptcy. Furthermore, Chapter 7 bankruptcy offers the ability to have this debt discharged in a relatively short time frame. If you pass the means test to be eligible for Chapter 7 bankruptcy and you are honest with the bankruptcy court and have no previous bankruptcy filings, you should be able to get your debts discharged within 3 months.

While many people fear losing their stuff in Chapter 7 bankruptcy, you might be relieved to hear that the majority of people who file end up being able to keep all of their belongings due to property exemptions. Exempt property is protected by law f from being liquidated in bankruptcy to satisfy creditor debt. While most people are able to retain their belongings in Chapter 7, one disadvantage of Chapter 7 is that losing assets is still a risk. Some property is non-exempt and, therefore, may be sold by a bankruptcy trustee to pay creditors.

One of the major limitations of Chapter 7 bankruptcy is the fact that you can make too much money and be ineligible to file for this type of bankruptcy. In most cases, this means an individual will file Chapter 13 bankruptcy instead. Eligibility for Chapter 7 bankruptcy involves passing the means test. If you have too much disposable income, income available after paying the necessary costs of living, then you will be ineligible to enjoy the benefits of Chapter 7 bankruptcy debt relief. Instead, you will usually have to turn to Chapter 13 where you will be put on a debt repayment plan to get the debt relief you seek.

There is also the disadvantage of Chapter 7 bankruptcy that your credit score will be impacted by the filing. In fact, you will likely see a significant drop in your credit score. Fortunately, credit can be rebuilt over time. Also, after bankruptcy discharges your debts, you will find yourself in a much better financial position overall.

Last, but not least, a disadvantage of Chapter 7 bankruptcy is the fact that it does not erase all of a person’s unsecured debts. For instance, alimony or child support is not dischargeable in bankruptcy. Tax debts are sometimes dischargeable but can be difficult to be granted dischargeable in bankruptcy court. The same is true of student loans.

New Jersey Bankruptcy Attorneys

Are you finding it difficult to keep up with minimum payments on your outstanding debt obligations? Do you feel unrelenting financial pressure? If you are looking for relief from debt, Chapter 7 bankruptcy may be right for you. Talk to the trusted bankruptcy attorneys at Cassidy Law Firm about your options. Contact us today.


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