If you are overwhelmed by debt, you may be considering bankruptcy, but you may not be sure if Chapter 7 bankruptcy is the best choice in your situation. When considering whether or not to file bankruptcy, it is best to consider a straightforward question, do the consequences outweigh the benefits?
What Are the Consequences of Filing Bankruptcy?
- The bankruptcy is listed on your credit report for 7 or 10 years, depending on the type of bankruptcy filed.
- Individuals with high-security level jobs may fear repercussions to their career or certification renewals. While this is very rarely a real concern, ask an experienced local bankruptcy attorney if you need more information.
- Bankruptcy proceedings are public record, including financial schedules.
- Possible loss of property. (Discuss what property is exempt with your bankruptcy attorney).
What Are the Benefits of Filing Bankruptcy?
- Bankruptcy’s automatic stay stops collection calls and letters seeking payment.
- The automatic stay also stops lawsuits and wage garnishments.
- Bankruptcy erases debt (how much of the debt is discharged depends on the type of debt and the type of bankruptcy you file).
- Bankruptcy may even help your credit score.
Why is Credit Score Referenced as Both a Consequence and a Benefit?
In many cases, people who file bankruptcy have already struggled with their finances for years. While credit bureaus and credit score advisors often proclaim bankruptcy to be the worst thing you can do for your credit score, for many, that’s not the reality. Bankruptcy, like foreclosures, repossessions, charge-offs, collections, etc. drive down scores, and bankruptcy has the potential to do so faster and more significantly than any other action. Still, you have to consider the current state of the bankruptcy petitioner when assigning a positive or negative value to bankruptcy’s effect on the filer’s credit score.
After struggling financially for so long, most petitioners go into bankruptcy with a credit score already battered by poor payment history, delinquent accounts, charged-off balances, etc. Once they file, their scores generally rise, not fall. Once the petitioner receives their discharge of debt, credit scores often go up even more. Within one year, most bankruptcy filers are much better off. In almost all cases of bankruptcy petitioners who actively seek to live a financially healthy lifestyle post-bankruptcy, the rate of recovery is impressive.
When is Chapter 7 Bankruptcy the Best Choice?
Chapter 13 bankruptcy falls off the credit report seven years after filing, while Chapter 7 bankruptcy stays on the credit report for ten full years. However, Chapter 7 bankruptcy typically takes a matter of months from filing to receiving a discharge of debt. In comparison, Chapter 13 requires the petitioner to complete a repayment plan that lasts either 3 to 5 years. The purpose of Chapter 13 bankruptcy is to repay as much of the debt as possible, while the purpose of Chapter 7 bankruptcy is to discharge all eligible debt. Debts eligible for discharge through Chapter 7 bankruptcy include revolving/credit card debt, medical bills, civil judgments (with an exception for fraud), personal loans, past due rent, past due utilities, older tax debt, business debts, etc.
Once you’ve decided that bankruptcy is a great next step in your situation, you have to determine what type of bankruptcy to file. If the majority of your debt qualifies for discharge through Chapter 7, contact an experienced local bankruptcy attorney to discuss whether or not you are eligible for Chapter 7.
If you have questions about discharging credit card debt or want to discuss filing bankruptcy, please don’t hesitate to get in touch. Most bankruptcy offices in the Chattanooga area don’t have a single Consumer Bankruptcy Specialist on staff. Our office is the only one in Chattanooga with two. You are in good hands with Kenneth C. Rannick P.C.