What does a Chapter 7 bankruptcy mean to you? Is it bad for you or is it bad for your creditors?

1) Chapter 7 bankruptcy usually better than a chapter 13- You may have heard that a chapter 7 bankruptcy is called a “straight bankruptcy” or that it has been called the “bad” bankruptcy.  This would put the chapter 13 in the position of being “good”.  But the  question is who is it good for?

Usually a chapter 13 is better for the creditors than a chapter 7 bankruptcy because they get paid back part or all of their debts.  There are times when a chapter 13 will benefit you if you can strip off a second mortgage or “cram down” an asset in the bankruptcy.  But those issues impact relatively few people in my opinion and for most people a chapter 7 bankruptcy is a better choice.  So a chapter 7 is usually better for you!

2) You keep your property- Chapter 7 bankruptcy is often the solution that is good for you when you have debts you cannot pay.  Most people qualify for chapter 7 bankruptcy.  Most people can keep most of their property in a chapter 7.   Many people think that they can’t keep their cars and houses in a chapter 7 bankruptcy though usually they can keep these assets and more.  The reality is that there are many generous bankruptcy exemptions in California that allow you to usually keep most of what you currently own.

3) Chapter 7 wipes out most debts – Most people can have their debts discharged or wiped out in a chapter 7 bankruptcy.  A chapter 7 allows you to usually get rid of all credit cards debts, personal loans, auto loans, and auto deficiency balances.  A deficiency balance is the amount left over after a creditor repossesses your financed car or other personal property.  The entire deficiency balance on repossessed personal property (including cars) is dischargeable in a chapter 7 bankruptcy.

Medical debts are also fully dishargeable in a chapter 7 bankruptcy as are three-year old income tax debts.  Student loans and child support are not dischargeable in bankruptcy but when people get rid of the dischargeable debts then usually they can afford to pay for the non-dischargeable ones.

4) Chapter 7 is over quickly and it is inexpensive- Chapter 7 bankruptcies are over quickly too.  After filing you get a hearing date in 30 days and the case closes 60 days after that.  The whole process ends in 90 days.  The cost is affordable with most cases being under $2000 complete and with some costing closer to $1000.

5) It is easy to rebuild credit after a chapter 7- After the chapter 7 bankruptcy process is over then it is easy to begin to rebuild your credit.  Most people have better credit score a few years after bankruptcy than they would if they continue to carry large debt loads and pay their monthly payments late every month.  This is because once the debts are discharged in bankruptcy then you don’t legally owe them any longer.  These debts therefore don’t continue to report negatively to your credit.  After the discharge it is easy to get new credit and use it to increase you score a little each month.

So for you chapter 7 bankruptcy means that you eliminate your debts, keep your property, improve your credit, and get a fresh start in life free of the weight of all that debt which puts you in a kind of prison.  So celebrate chapter 7 bankruptcy.  It’s good for you so use it to liberate you from your debt trap!