Once your Chapter 7 eligibility has been determined, it’s important to consider whether the unique benefits and drawbacks of bankruptcy make filing an optimal path forward for you. Savage Villoch Law can work with you directly to understand your specific circumstances and balance these factors to help determine whether you should file.
First and foremost, Chapter 7 can grant you quick and complete relief from your unsecured debts – it’s the fastest and most common form of bankruptcy, and the vast majority of those who file will get relief. Any of your financial obligations that are not backed by collateral can be discharged – think your credit card debt, medical bills, and personal loans. In a typical Chapter 7 case, these debts will be discharged within three to six months of filing, and your creditors must stop attempting to collect as soon as your petition is filed.
Forcing your creditors to stop calling you is really a two-fold benefit of bankruptcy. First, you can rest easy knowing that collectors won’t be calling you or otherwise bother you while the bankruptcy court is considering your case since collections are paused until the court determines whether you’ll receive Chapter 7 relief. Second, the quick turnaround for Chapter 7 cases offers you a jump start on rebuilding your financial future, especially when compared with the years-long repayment plans generally used in a Chapter 13 reorganization bankruptcy.
Despite its benefits, the drawbacks of filing under Chapter 7 should also be seriously considered before making the decision to file. One of the main drawbacks is the liquidation of your property to help pay back your debts. Chapter 7 requires that any of your non-exempt property be sold off before your debt is discharged. This means any high-value assets may be sold off during the Chapter 7 process.
Luckily, each state sets certain exemption limits, allowing those who file under Chapter 7 to keep their property that is valued below the exemption limit. Florida has an unlimited homestead exemption, so you can keep your home through bankruptcy. Also, Florida allows you to protect other assets, to a more limited degree, in bankruptcy. However, if the value of your assets falls above the limit and you would prefer not to part with them, Chapter 7 may not be the solution for you; this is something Savage Villoch Law would discuss with you.
Filing under Chapter 7 will also negatively impact your credit score, sometimes for as long as 10 years. You also won’t be eligible to open up new lines of credit for one to three years after filing, and even once you can begin to open up new lines, you’ll likely face much higher interest rates. But the sooner you begin to repair your credit, the better.
While these impacts can be damaging, they should be carefully weighed against the potential repossessions, lawsuits, and other negative consequences you might face if you decide not to file under Chapter 7 when in a financial situation that warrants it. Your credit may suffer more if you decide not to file under Chapter 7 when facing such financial hardships than if you do file.
Chapter 7 bankruptcy offers the potential opportunity to start from a clean financial slate, but it doesn’t come without its own specific risks. Working with a trusted attorney can help ensure this option is well suited for your circumstances, and that the benefits of filing under Chapter 7 will outweigh the drawbacks.