Although a Chapter 7 bankruptcy (often referred to as a "liquidation") is the most common form
of bankruptcy, it may not be the right financial decision in every circumstance. Still, it is helpful
to recognize the advantages of a Chapter 7 bankruptcy, especially since they might not be
present in other alternatives. Because declaring bankruptcy can be a very painful, emotional
process, it is best to do as much research as possible before making the decision, and it's
always advisable to speak to a knowledgeable professional who can go over your personal
financial situation and properly advise you as to whether or not bankruptcy is the right path for
you to take.
If you are going through a financial crisis you may feel like you are running out of options to
make it through. Although filing for bankruptcy is often viewed as a last resort, it actually can
be a great tool to get you back on track. Here are the few reasons seeking a
Chapter 7 bankruptcy protection may be a solid solution to your financial problems.
It Presents A Quick Solution
Unlike a Chapter 13 bankruptcy (sometimes referred to as a "personal reorganization") which
can take up to five years, the Chapter 7 bankruptcy usually only takes four to six months.
In a Chapter 7, you don't have to file a plan of repayment of debts stretched out over a
period of years. Your financial affairs are reviewed and your bankruptcy "estate"
is administered by a court-appointed Trustee within the first few months of
filing; the process is relatively simple to complete. Most likely, you'll only have to make one
appearance, and that will be in front of the Chapter 7 Trustee assigned to your case instead of
a bankruptcy court judge. If you want to get out from under debt as soon as possible, and if you
qualify, Chapter 7 will probably be your fastest bet.
It Provides A Fresh Start
A Chapter 7 bankruptcy will discharge most of your "unsecured" debts (those for which you
have not pledged collateral) completely, giving you a clean slate to move forward financially.
In fact, by properly applying the exemptions allowed in bankruptcy, you should be able to keep
most, if not all, of your assets and eliminate most, if not all, of your unsecured debt. There is no minimum or maximum limits for debt imposed in order to file a Chapter 7, and depending on how urgent your financial problems are, it can provide enormous relief. While filing for bankruptcy will have an immediate negative impact on your credit score, there are affirmative steps you can take immediately after receiving your discharge to start rebuilding your credit profile and it filing often makes a dire financial circumstance more manageable short-term.
It Protects You From Creditors
One of the biggest advantages of a Chapter 7 bankruptcy lies in the "automatic stay," a court-
ordered mechanism similar to a state court injunction that provides the debtor immediate relief
from creditors by preventing them from taking any action to collect a debt which arose prior to
your filing bankruptcy. If you are experiencing harassment on account of your debts, filing a
Chapter 7 will put an immediate stop to creditor actions such as lawsuits, wage garnishments,
and those unpleasant interactions or phone calls with creditors or their collection agencies.
It Can Eliminate Debts While Shielding Assets From Creditors
When you file bankruptcy, it's your obligation to list all of your debts, as well as all of your
assets. The reason is that bankruptcy was enacted to give the honest debtor a chance at
a "fresh start" while providing creditors a forum in which to be repaid from assets that cannot
be protected in bankruptcy. Remember that Chapter 7 is often referred to as "liquidation,"
because your non-exempt assets are liquidated to distribute among your creditors. After you
file a Chapter 7 petition, the court will appoint a Trustee to examine property that may be
non-exempt, determining what can be sold to satisfy your debts. If you have assets and are
unsure if they will be at risk in a bankruptcy, it is vital that you consult an attorney experienced
in bankruptcy that can properly advise you and apply either the Federal or state specific
exemptions to your maximum benefit so that you are able to emerge from bankruptcy with the
assets you had when you went in, including equity in your home, your vehicles, retirement
accounts and family and household items.
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