Chapter 7 Bankruptcy benefits and some common pros and cons:
Chapter 7 Bankruptcy Benefits:
No Payment Plan in Chapter 7 Bankruptcy.
Unlike a Chapter 13 Bankruptcy, there is no payment plan to your creditors. However, for some clients, a Chapter 13 Bankruptcy is more beneficial if they are trying to stop foreclosure or repossession or need to restructure a nondischargeable debt payment like IRS tax debt.
Discharge certain debts.
Debts like credit cards, unsecured personal loans, medical bills, certain tax debts, deficiency from repossessions are discharged in Chapter 7 Bankruptcy. Of course there are exceptions to this general rule. For example, you cannot go out and run up your credit card debts right before filing for bankruptcy. The purpose of a bankruptcy discharge is to benefit the honest debtor. However, Chapter 13 Bankruptcy can discharge more types of debt. Of course certain debts like child support, alimony, fines, penalties, and certain tax debts cannot be discharged by either Chapter 7 or 13 Bankruptcy. Call for more information.
Automatic Stay is immediate upon filing.
Clients who file for bankruptcy want the immediate protection against certain creditors from certain collection attempts. For example, some clients file for Chapter 7 Bankruptcy to stop a credit card company from wage garnishment. Of course, automatic stay will not protect you against all creditors like child support or alimony payments. Automatic Stay is also immediate in Chapter 13 Bankruptcy filing. Call for more information.
Get a Fresh Start Quicker.
Because there is no payment plan, a typical Chapter 7 Bankruptcy case will take between 3 to 4 months for a discharge. After that, you can start to reestablish your credit by showing positive credit history after bankruptcy discharge. This is the best of Chapter 7 Bankruptcy benefits.
Chapter 7 Bankruptcy Disadvantages:
You will Lose Unexempt Assets.
If you have more assets than what is protected under the California exemptions, you will lose the assets. For example, if you have too much equity in your home and more than what is protected under the exemption, your Bankruptcy Trustee will likely sell your home. At this point, you should consider filing for Chapter 13 Bankruptcy so that you can keep all assets. The trade-off is that you pay your creditors the nonexempt amount of your assets in a payment plan for up to 5 years.
Does not Prevent Foreclosure or Repossession.
Due to the automatic stay, Chapter 7 Bankruptcy can only slow down the foreclosure or repossession process. It does not prevent it. If you want to keep your home or car, you should file a Chapter 13 Bankruptcy for a repayment plan to your mortgage or auto loan. In some auto loan, Chapter 13 Bankruptcy may reduce the principal balance or reduce the interest rates.
Does not Restructure Debt Payment.
If you have a high monthly payment to the Internal Revenue Service or Franchise Tax Board, you should consider Chapter 13 Bankruptcy. The same applies if you have a high monthly car payment. Chapter 7 does not involve a payment plan so you cannot restructure any payments to creditors especially to debts that cannot be discharged or eliminated.
There more more major differences to Chapter 7 vs Chapter 13 Bankruptcy.
Of course, you should always consult an experienced Bankruptcy Attorney in your decision to file bankruptcy. Websites are great for initial information but it cannot explain everything. I do not attempt to nor can I explain all the nuances in a website. I can only list examples. Every case is unique and too complex to fully explore in a webpage.
Muoi Chea is an experienced Sacramento Bankruptcy Attorney with over a decade of experiences helping clients in Sacarmento, Fairfield, Stockton, CA and throughout Northern and Central California cities.