Does Declaring Chapter 7 Bankruptcy Actually Help You?

Rich Feinsilver is an experienced bankruptcy lawyer who will take the time to discuss with you your decision to file, since this is not something that one should make ‘on the fly’. If you so choose to file personal bankruptcy, the law allows you to choose between Chapter 13 or Chapter 7 bankruptcy.

While both scenarios have their pros and cons, this post is focused on highlighting the reasons that make Chapter 7 a better option for declaring bankruptcy, as noted by an experienced bankruptcy attorney.

The Legal Fees and the Process

Typically, a Chapter 7 bankruptcy case takes around five to six months at max to be resolved. On the contrary, a Chapter 13 bankruptcy case could take up to 5 years to be fully settled. This obviously increases the legal fees of hiring attorneys and other costs, making Chapter 7 an affordable option to cover with your already meager finances. Another thing worth mentioning is the duration of hearings that normally do not last more than 10 minutes. The Chapter 7 bankruptcy process is designed to get you in and out of courts in minimum possible time.

You Get Rid of Your Debt without Losing Your Assets (Usually)

Possibly the most attractive feature of the Chapter 7 bankruptcy is the fact that you do not lose everything that you own. The Chapter 7 bankruptcy lists down a list of non-exempt property items – these are the only assets that you risk losing to your creditors. Everything else (in majority cases) you can keep with you once the process is complete. These exemption laws may vary from one state to another. Check out what is exempted under Chapter 7 for New York.

No Payback on Unsecured Debts

When you declare bankruptcy, your debts are essentially divided into two basic classifications: the unsecured and the secured debts. While the secured debts cover your cars, homes, and any other asset with attached collateral, the unsecured debts include personal loans, credit cards, and medical debts. Chapter 7 completely discharges all of your unsecured debts, but there is an exception. This exception is a sub-category of unsecured debts that includes taxes and student loans.

Your Future Income is Yours to Keep

Once you declare bankruptcy under Chapter 7, the only income considered by the courts is the one you earned in the six months preceding your declaration. None of the income that you earn following the bankruptcy filing constitutes the part of your “bankruptcy estate.” However, in case you receive money as an inheritance in the six months following the filing, it would be considered part of the estate.

We’re not saying there wouldn’t be a downside to the whole situation. Declaring bankruptcy is an extreme measure and it does take its toll on your overall credit ratings. However, this is an inert occurring, and as each day passes, you can work towards building up your credit worth from scratch again.

Please see our infographic on Chapter 7 bankruptcy.

To see if you’re eligible for filing a Chapter 7 bankruptcy, take a look at the eligibility criteria.