Chapter 7 Bankruptcy: Is It for You?
Filing for protection from the bankruptcy court is a tough decision to make that requires even more decisions once made. The first decision is what chapter of bankruptcy code to use.
Chapter 7 bankruptcy is also known as "straight bankruptcy" and is available if you are an individual, a corporation, or a partnership. What this involves is turning over many of your assets to a trustee, who then decides which of your creditors get how much of your assets. In exchange for giving up your assets, the court basically "wipes the slate clean," discharges all your debts, and allows you the chance to start over with no debt. This can usually be accomplished within four to six months.
As easy and desirable as this may sound, a Chapter 7 bankruptcy proceeding does come with some bad points. The first is that it will ruin your credit. The bankruptcy will appear in your credit records for several years. Many people who would otherwise be willing to loan you money will not do so if you have prior bankruptcy proceedings in your past. The reasoning is simple. If they loan you money, they want to get it all back. By filing for bankruptcy you basically declare that you cannot pay all your bills and that all the companies you owe money to have to be satisfied with taking a piece of whatever assets you turn over to the bankruptcy court, even if that means your creditors do not get all their money back. Creditors understandably do not like that. An additional drawback is that a Chapter 7 proceeding does not discharge any cosigners on your loans. By declaring bankruptcy you are leaving them to pay any loans they cosigned for you.
Who Does Chapter 7 Make Sense For?
If you have no hope of paying all your debts, a Chapter 7 bankruptcy may be your best choice. You do have a few things to consider before filing. Furthermore, if you do not have a cosigner for any debt, this is a good choice, because otherwise they would be left to pay your bills. Finally, if you are about to be, or have been, sued by your creditors, a Chapter 7 bankruptcy will stay those lawsuits and make the plaintiffs in those cases present their claims in your bankruptcy case.
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