4 Reasons to File for Chapter 7 Bankruptcy

Here are the benefits of filing for Chapter 7 bankruptcy.

16:28 21 December 2021

Bankruptcy isn’t something you ever want to go through, but it can provide a way out of an otherwise dire financial situation. And when it comes to the different types of bankruptcy, Chapter 7 is best for most people.

 

What is Chapter 7 Bankruptcy?

Chapter 7 is commonly referred to as “liquidation bankruptcy,” because of the manner in which it discharges unsecured debt like credit card debt, personal loans, and medical bills. It’s arguably the simplest type of bankruptcy and generally accounts for somewhere around two out of every three bankruptcy cases. 

 

“You must pass a ‘means test’ to qualify for Chapter 7 filing,” Debt.org explains. “The bankruptcy means test examines financial records, including income, expenses, secured and unsecured debt to determine if your disposable income is below the median income (50% lower, 50% higher) for your state. The means test income level varies from state to state.”

 

Typically, the entire Chapter 7 bankruptcy process is going to take somewhere between four to six months to complete. This makes it a fairly efficient way to turn your finances around and start anew. 

 

Why Should You File for Chapter 7 Bankruptcy?

With several different types of bankruptcy to choose from, it’s important to do your research on the pros, cons, and situational factors associated with each. Here are a few reasons why Chapter 7 makes sense:

 

1. Automatic Stay Protection

Filing for Chapter 7 bankruptcy provides immediate relief, thanks to something known as an “automatic stay.” The automatic stay protection, which gets triggered as soon as a bankruptcy is filed, requires all collectors to stop contacting you. This means no more phone calls, collection letters, or wage garnishments. It also puts a temporary stop to things like foreclosures, evictions, and repossessions.

 

Aside from the practical protection that the automatic stay provides, there’s also the emotional side of things. You can (physically) take a deep breath and collect yourself. It gives you time to plan for the next step.

 

2. Keep Most of Your Stuff

One of the biggest concerns people have in a bankruptcy situation is losing things that are near and dear to them – like a family house. But you might be surprised to learn that 95 percent of people who go through a Chapter 7 bankruptcy are able to keep all of their things.

 

“Most clients that are thinking about bankruptcy are worried about how it may affect them or if they will lose their home or vehicle,” bankruptcy attorney Rowdy G. Williams mentions. “ But the truth is that most clients do not lose anything but their bills and keep all of their property.”

 

No, a Chapter 7 bankruptcy is not a get out of jail free card with zero consequences. It is, however, a safety net for those who find themselves in dire financial situations.

 

3. Permanent Protection

One of the best things about Chapter 7 bankruptcy is that it provides permanent protection. In other words, you don’t have to continually look over your shoulder and wonder if creditors are going to come clawing back once you acquire new assets or see an increase in your income.

 

Generally speaking, no property acquired after filing for Chapter 7 can be claimed by creditors. This includes inherited property, death benefits, proceeds from life insurance policies, or lottery winnings that are acquired more than six months after the filing.

 

4. Moving On

At the end of the day, Chapter 7 bankruptcy allows you to move on. It gives you a second chance at life. You can stop shuddering when you open the mailbox or pick up the phone. Instead, you can relax and move on with your life. Within several months, you’ll have a clean slate from which to work with.

 

Give Yourself a Fresh Start

You never want to find yourself in a situation where you’re facing an insurmountable pile of debt that’s preventing you from living your best life. But regardless of whether it’s self-inflicted through poor financial decision making, or life dealt you a bad hand and you find yourself dealing with a mountain of medical bills that are out of your control, Chapter 7 bankruptcy could give you the fresh start you need.