Chapter 7 Bankruptcy | The Benefits of Filing Bankruptcy (Pt.1)

Chapter 7 Bankruptcy | You’ve always been told that bankruptcy is a bad thing, and that it can take years to recover. But a lot of times, bankruptcy can be just what you need for financial recovery.

When is Bankruptcy a Good Thing?

While it’s true that filing for Chapter 13 or Chapter 7 bankruptcy has its downfall – it will lower your credit score by 100 points or more and thus directly impact your ability to qualify for new credit cards, a mortgage loan, auto loan, or personal loan for a few years after you file – but that doesn’t mean that you should avoid it at all costs.

“We look at bankruptcy as a last resort,” said Leslie Tayne, a debt-relief attorney. “But sometimes I do advise people to file for bankruptcy. When paying off debt would leave you with no money left over to put food on the table, if it means you can’t pay your mortgage, if there is nothing left over, that’s catastrophic, and then it makes sense to file for bankruptcy.”

Here are some instances when filing for bankruptcy protection might make the most sense, and actually regain your financial standing.

Chapter 13 and Chapter 7

Before you even decide to file, you’ll need to determine which type of bankruptcy protection will work the best for you.

There are two main types of consumer bankruptcy protection: Chapter 13 and Chapter 7.

Chapter 13

Chapter 13 bankruptcy is designed to allow you to keep all of your property, but is also determined by your property. The amount of your nonexempt property affects how much unsecured creditors get paid during your bankruptcy process. And to avoid foreclosure or repossession, you still need to keep up with the payments you make for you secured debt, such as mortgages or car loans.

Chapter 7

When you file a Chapter 7 bankruptcy, almost all of your assets and property are liquidated and thus become property of the bankruptcy estate that is sold to allow you to repay your debts. There are some exceptions to this though.

During your Chapter 7 bankruptcy, a bankruptcy trustee is appointed and given the authority to sell your assets so that you are able to pay your creditors.  Just because your assets are being sold, that does not mean that all of your property needs to be sold.

Differences in Chapter 7 and 13 Bankruptcy

In Chapter 13 bankruptcy, a trustee will not sell your nonexempt assets and distribute the proceeds to your creditors. That’s how it works in Chapter 7 bankruptcy. Rather, you will need to put together a repayment plan that shows your creditors how you plan to pay back some or all of your creditors. You get to keep your property in exchange for paying back a certain amount of the debt you owe. But remember that the more nonexempt assets you have, the more you will need to pay to unsecured creditors.

When you file for Chapter 7 bankruptcy, a trustee takes the nonexempt property, sells it, and uses the proceeds to pay your general unsecured creditors. But because you keep all of your property with Chapter 13, it’s unfair to your unsecured creditors if they do not get paid as much as they would have had you filed for Chapter 7.

Because of this, if you file Chapter 13 and create a repayment plan, you will still need to pay the general unsecured creditors a dividend at least equal to the value of your nonexempt assets. So if you have a large amount of nonexempt property, you hay have to repay the unsecured debts in full.

Credit Score

Both Chapter 13 and Chapter 7 bankruptcy will drop your credit score – usually by 100 points or more. In terms of “staying power,” Chapter 7 bankruptcy stays on your credit report for 10 years and Chapter 13 falls off after seven years.

The fact that the bankruptcy is on your credit report will impact you every time you apply for a new line of credit from lenders, including credit cards, a mortgage, a car loan, a student loan, or any other form of credit. It can be difficult for lenders to approve your applications because of the bankruptcy because it shows that you have had issues with repayment in the past. Additionally, you might also face paying higher interest rates if a lender does decide to loan you money.

While this can be daunting, there are some reasons why bankruptcy is still a good option. – Simon Resnik

Specializing in bankruptcy and foreclosure law for over 20 years. Call attorney David Pinkston for a free consultation today: 904.306.5791. #FloridaBankruptcyAttorney #FloridaBankruptcy

If you are thinking about #bankruptcy or #foreclosure in the Jacksonville, Florida area, you should call attorney David Pinkston. David is very experienced with all aspects of bankruptcy law yet very personable and easy to talk to. Call Us Today! 904.306.5791