Is Chapter 7 Bankruptcy Right for You?

By Andrew Lu on July 27, 2012 | Last updated on March 21, 2019

If you're facing overwhelming debt, you may be considering filing for Chapter 7 bankruptcy.

Chapter 7 bankruptcy is a solid option for many, as it can give you a "fresh start," erasing the obligation to repay and giving you a chance to get on with your life.

However, just because you can eliminate your debt with a Chapter 7 bankruptcy, doesn't necessarily mean it's the best option for you. You may also want to look into an alternative like Chapter 13. 

Let's look at when Chapter 7 may be right for you and when it may not be.

As mentioned, the main benefit of Chapter 7 is debt discharge. If you file for this type of bankruptcy, your debt is eliminated. However, you should be aware that when you file for Chapter 7, you will also be obligated to sell off many of your things like your bank accounts, stock holdings, and vacation homes to offset the debt. You may be able to keep these items with a Chapter 13 bankruptcy by working out a repayment plan with your creditors.

Another advantage of Chapter 7 bankruptcy is that it is fast. The whole process usually takes three to six months. So if you're looking to resolve your debts quickly and move on with your life, Chapter 7 may be the best bet. On the other hand, you should be aware that Chapter 7 may destroy your credit. It can remain on your credit file for up to ten years. In the alternative, Chapter 13 will require an ongoing relationship with your creditors -- as you repay them over the course of years. However, the impact on your credit may not be as significant.

Finally, you should be aware that even if you want to file for Chapter 7, you may not be able to. For example, only debtors who fall below state income guidelines are eligible to file. So, if you make too much, you may have no other option but to file for Chapter 13.

Deciding to file for bankruptcy is a very personal decision. As a starting point, you can take a look at FindLaw's Guide to Chapter 7 Bankruptcy. If you think that bankruptcy is the answer for you, you may also want to contact a bankruptcy attorney.

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