What are the pros and cons of Chapter 7 bankruptcy?

When determining whether Chapter 7 bankruptcy may be the right debt relief option for them, it is helpful for people to consider the pros and cons.

The loss of a job, over-spending, a medical emergency and any other number of factors may lead to financial challenges for people in New Jersey, and elsewhere. When they choose to retake control of their finances, many people look into the various debt relief options. This includes considering filing for Chapter 7 bankruptcy. In order to decide if this is the right option for them, it may be helpful for people to weigh the pros and cons of seeking this type of protection.

Pro: Resolve the case quickly

Compared to other bankruptcy options, Chapter 7 cases are generally resolved relatively quickly. Under most circumstances, people's cases may be finalized within three to six months of them filing their petition. A Chapter 13 bankruptcy, on the other hand, extends over three to five years. Therefore, filing for Chapter 7 bankruptcy may help people to efficiently achieve a fresh financial start.

Con: Lingering credit implications

Although Chapter 7 bankruptcy allows people to quickly start rebuilding their financial situations, it may have a lasting effect on their credit. Chapter 7 cases may stay on filers' credit reports for up to 10 years. Consequently, their ability to obtain lines of credit, such as a home loan, may be negatively impacted well after their cases were finalized.

Pro: There is no minimum debt

What seems like overwhelming debt to one person may seem like a drop in the bucket to another. Chapter 7 bankruptcy, however, may offer relief to people with all debt amounts. There is no minimum on the debt required to seek Chapter 7 protection, thus, people of all financial situations may be able to obtain this type of relief.

Con: Not everyone qualifies

There are certain eligibility qualifications that people must meet in order to file for Chapter 7 bankruptcy. Although there are no specific income requirements, people must pass the means test in order to receive Chapter 7 relief. Additionally, they must have completed credit counseling with an approved agency within the 180 days prior to them filing their petitions. According to the U.S. Courts, people are not eligible for this type of protection if they have had another filing dismissed because they failed to appear, neglected to comply with a court order or voluntarily dropped a case after their creditors sought to recover property within 180 days prior to their filing.

Pro: Discharge of debts

At the end of a Chapter 7 case, people may be relieved of their personal liability for some of their debts through a bankruptcy discharge. Generally, unsecured debts and those for which creditors do not hold collateral may be forgiven through the discharge. This includes credit card charges, medical bills, some personal loans, back rent and utility bills, among others.

Con: Discharge limitations

There are limits to the Chapter 7 discharge. For instance, this action will not eliminate most tax obligations, child support, the majority of student loans, criminal restitution and a number of other debts. Additionally, people can only have their debts forgiven through a Chapter discharge once every eight years, according to the U.S. Department of Justice.

Seeking legal guidance

Overwhelming debt can put stresses on people's personal and professional lives in New Jersey and throughout the U.S. Those who are considering filing for bankruptcy may benefit from consulting with a legal representative. An attorney may advise them of their options and help them determine the best course of action given their situation, as well as guide them through the legal process.