There are many factors that should be taken into account when considering filing for bankruptcy. An individual filer can go for Chapter 7 or Chapter 13 bankruptcy depending on his/her financial situation.
Chapter 7 bankruptcy is a solid option for many as it can give a debtor a fresh start, erasing the obligation to repay and giving him/her a chance to get on with their life. Typically, Chapter 7 bankruptcy works best for people who owe lots of credit card and medical debt, are getting collection calls and notices, do not own much property, do not have enough income to pay off bills and is having below-stellar credit.
Filing Chapter 7 bankruptcy has advantages as well as drawbacks. It provides the protection of Automatic Stay, which halts collection efforts creditors and the exemptions, will help the debtor to keep valuable possessions. Even though, Chapter 7 bankruptcy eliminates debts, it can result in having to sell off many things like bank accounts, stock holdings, and vacation homes to offset the debt. On the other hand, Chapter 13 bankruptcy helps to keep these items by working out a repayment plan with the creditors. Chapter 7 property protections vary according to state laws, but, generally speaking, Chapter 7 offers less protection for your property than Chapter 13 bankruptcy
Another advantage of Chapter 7 bankruptcy is that it is fast. The whole process usually takes around three to six months. So if you are looking to resolve your debts quickly and move on with your life, Chapter 7 may be the best option. But it’s good to keep in mind that Chapter 7 may destroy your credit. It usually stays on your report for 7-10 years. In the alternative, Chapter 13 involves an ongoing relationship with the creditors as you repay them over the course of years. However, the impact on your credit may not be as significant.
Also, not everybody is eligible to file Chapter 7 bankruptcy. Only debtors who fall below state income guidelines are eligible to file. So, if the debtor’s income is high enough to pay off the debts through Chapter 13, s/he will have to file for Chapter 13.
Deciding to file for bankruptcy is a personal decision. You should sit down with your financial documents and consider your situation carefully before making a decision.