Weighing Your Choices: Is It Time To File Chapter 7?
By: Ty S. Mahaffey, Esq.
Published: August 23, 2017
Is it time to declare Chapter 7 bankruptcy? Or, should you pull yourself up by the proverbial bootstraps and tough out the next few years hoping your finances improve?
It’s a tough choice, and — ultimately — you’re the only one who can make it. However, that doesn’t mean you have to make the choice wearing a blindfold — consider both the positives and negatives of Chapter 7 before you decide.
Chapter 7, which is often called “total” bankruptcy because it wipes out all of your debts (with a few exceptions) and gives you a clean slate, can sound wonderful when you’re exhausted from a lot of nasty calls from creditors and ankle-deep in unpaid bills.
However, there are some downsides:
Your credit score will be damaged, killing your chances at certain loans and definitely increasing interest rates on those you do get.
You may lose a few luxuries if you have some excess property that the trustee could sell to satisfy part of your debts.
You’ll have to learn to live without credit for a while.
You can’t get rid of student loans (usually), child support or spousal support.
You have to meet a financial means test, showing that you really don’t have the money to pay back your creditors, even through structured payments in a different form of bankruptcy.
On the other hand, people wouldn’t file for Chapter 7 bankruptcy if it were all bad. Those calls and letters from your creditors do stop, for example.
Here are some of the other upsides:
If you’ve already maxed out your cards, you don’t exactly have access to credit now — so you aren’t losing much.
Your utilities can’t be shut off once you file.
All the late payments and defaults are going to damage your credit anyhow. There are companies that specifically help people who have filed bankruptcy get credit again after a short period of financial responsibility.
Most people meet the financial means test and very few have to give up any significant assets.
It may keep you from losing your home if you can catch up the mortgage or work out an agreement with the lender.
If you aren’t likely to get into a repeat financial situation, it is the quickest way to move on.
An attorney can provide more specific advice about your case today.