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Chapter 7 bankruptcy is often the final resort for debtors that need relief. Although it can have effects on your finances for years to come, Chapter 7 is often the better choice for people than
Chapter 13. A few of the pros and cons of Chapter 7 bankruptcy will be described below.
In Chapter 7 bankruptcy, you agree to sell off your excess wealth in order to pay your creditors. While this sounds daunting, it is not always the case. You are able to protect a lot of important things – your house, your car, and so on. Frequently the only things that are not protected are luxury items, which are sold in order to pay off debts. As a result, if you do not have many unprotected or luxury items, then you will get off relatively easy when declaring Chapter 7. The majority of your debts will be cleared and you may have not had to give up very much property. There are a few types of debts that will not be cleared – student loans and alimony payments – but these would not be cleared from any type of bankruptcy.
The other major benefit of Chapter 7 over Chapter 13 is how quick
the process is. The whole Chapter 7 declaration process takes no more than 6 months, at which point you will be relieved of most debts –
compared to Chapter 13, in which you will be working to pay debts for years to come. Additionally, from the point at which you declared bankruptcy, your creditors will no longer be able to contact you.
However, there are some drawbacks. The major one is that it will be on your credit report for ten years. This means that it will be
harder to get a mortgage – especially since many subprime lenders have been hit hard recently from the recession – and nearly impossible in your first two years after declaring. Similarly, you will not be able to declare bankruptcy again for six years. The good news is that you now have a clean slate, with a chance to budget your finances, control your credit card spending, and not get into debt again. Hopefully, you will not need to declare bankruptcy again!