What is Chapter 7 Bankruptcy?
Chapter 7 Bankruptcy is also known as liquidation bankruptcy, because it removes all debt that can be removed according to the Chapter 7 rules. Chapter 13 bankruptcy, however, makes a repayment plan for debt. If you decide to file for Chapter 7 bankruptcy, you must first attend credit counseling then file for bankruptcy with your local bankruptcy court. The court then issues an automatic stay to keep creditors from collecting on debt while you are going through the bankruptcy process. A trustee is appointed to each case to decide whether your nonexempt property can be sold to pay off your debts. If the trustee decides income from such a sale would not be sufficient to pay creditors, you will likely be allowed to keep your nonexempt property. You can choose to pay your creditor the replacement value of your nonexempt property, return your property to the creditor, or agree to new contract terms for the property. There are both pros and cons of filing Chapter 7 bankruptcy.
Pros of Filing Chapter 7 Bankruptcy
There are some benefits to filing Chapter 7 bankruptcy. The discharge of debt removes debt that you may be unable to pay back. Most things you own can be exempt from repossession, apart from some luxury items. Although it will not relieve you of child support, tax debt, and student loans, it can alleviate other debts and allow you to pay back remaining debt. Furthermore, there is no minimum amount of debt required to file for Chapter 7 bankruptcy, so you always have it as an option if you feel you need it.
Cons of Filing Chapter 7 Bankruptcy
Chapter 7 bankruptcy can stay on your credit report for up to 10 years, effectively ruining your credit and making future loans and mortgages much more difficult. As the title liquidation bankruptcy suggests, some of your property, such as your car and house, may be repossessed and sold at an auction. You will also lose all of your credit cards, because these are purely sources of debt. There are limitations on who can file for Chapter 7 bankruptcy. You may not file for Chapter 7 bankruptcy if you fail to attend credit counseling, have attempted to defraud the bankruptcy court or your creditors, qualify for Chapter 13 filing, or have had debt discharged in the past six years through Chapter 7 bankruptcy or in the past eight years with Chapter 13 bankruptcy. If you file for Chapter 7 bankruptcy to have debt removed quickly, the court may decide you better qualify for Chapter 13 bankruptcy and may convert your case, requiring you to pay out your debt over three to five years, keeping you trapped by your debts. Bankruptcy, overall, does not look good to creditors, business partners, or employers. If you can avoid having bankruptcy on your record, you should do so.
Voluntary Repossession
If you are unable to make payments on a loan, such as an auto loan, you have a few options. You can attempt to sell your vehicle, simply not make payments and wait for the lender to come repossess it, or opt for voluntary repossession. Voluntary repossession is when you take your vehicle back before the lender can come to repossess it. You then do not have to pay the lender’s cost of repossessing the vehicle. However, repossession in all forms will negatively affect your credit, making it difficult to get another vehicle. It also does not cancel out the loan, but the amount your vehicle sells for will be deducted from your remaining balance.
Alternatives to Filing Chapter 7 Bankruptcy
After examining the pros and cons of filing Chapter 7 bankruptcy, it is now time to decide what is right for you. If you are considering filing Chapter 7 bankruptcy in Houston, TX, you have other options to consider. At Shaw Defense, we can help you decide what the best option is for you. We offer a unique and ethical alternative to filing Chapter 7 bankruptcy that has proven to be very successful. We have helped many people facing Houston bank foreclosures. Call us today to learn about our alternative approach, and receive a free consultation.