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What are the pros and cons of Chapter 7 bankruptcy?

Like others in Washington, DC who are struggling with overwhelming debt, you may have considered filing for Chapter 7 bankruptcy. This option is not always right for every person and situation, however. Understanding the pros and cons of declaring bankruptcy under this chapter may help you determine if it is the right option for you.

One of the largest disadvantages of filing for Chapter 7 is that not everyone is eligible. According to the United States Courts, some of the eligibility requirements for this type of bankruptcy filing include the following:

  •        You must qualify under the means test
  •        In the last 180 days, you cannot have had another petition dismissed because you purposely did not appear in court or comply with the court’s orders
  •        In the last 180 days, you cannot have voluntarily dismissed a petition for bankruptcy after your creditors took action to recover the property they held liens on

Additionally, you are required to complete credit counseling through an approved agency within 180 days of filing for bankruptcy.

During a Chapter 7 bankruptcy, some of your debts may be discharged. However, you may lose some of your property. According to the United States Courts, a bankruptcy trustee may collect and sell your nonexempt assets. The proceeds of those sales are then used to pay some of your creditors. The Bankruptcy Code does provide certain exemptions for primary residences, vehicles and personal property. Furthermore, you are able to keep the wages you earn and the property you purchase after filing for Chapter 7 bankruptcy.

From start to finish, Chapter 7 bankruptcy usually takes between three and six months. This enables you to quickly achieve a fresh financial start, so you can begin rebuilding. On the downside, however, filing for bankruptcy may have a negative impact on your credit rating. A Chapter 7 filing could stay on your credit report for as long as 10 years.

This post has provided an overview of the benefits and disadvantages of filing for Chapter 7 bankruptcy. You should keep in mind, however, that the circumstances of each case are unique. Therefore, you should take this only as general information, and should not consider it legal advice.

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