Debt problems can occur almost overnight. An unexpected change in employment status, illness, or another life event could place a strain on your finances and cause you to quickly eat through savings. So, if you find yourself drowning in debt, bankruptcy can be a reasonable solution.
However, when most people think of bankruptcy, what typically comes to mind is a Chapter 7. The general perception of a Chapter 7 bankruptcy is that a person is forgiven on all their debts, empowering them to make a fresh start. Yet, a Chapter 7 bankruptcy is not so straightforward and there are some downsides.
1. It is possible that not all unsecured debts are discharged. – The type of unsecured debt is important. For example, child support and alimony can never be discharged. Moreover, student loans are extremely difficult. Additionally, tax debts cannot be discharged without a special exemption.
2. A Chapter 7 Bankruptcy will impact your credit. – This may not be an issue if you have accounts in default, debt collectors pursuing you, lawsuits, repossessions, and other negative activity listed on your credit report. Yet, others will find their credit rating plunge.
3. You may be forced to sell your stuff. – While some people have few assets and have little for worry about, others may find they will be forced to sell luxury items. This could include things like vacation property, recreational vehicles, jewelry, and other such items.
4. You have not considered other options. – While you may feel you are drowning in debt, it is important to first evaluate your budget, reduce living expenses, and maybe even consider additional employment before filing for bankruptcy.
5. You are filing a Chapter 7 Bankruptcy too soon. – In some circumstances, like dealing with medical issues, it is important not to file bankruptcy too soon. Once completed, you will not be able to file another Chapter 7 for six years. If you expect more debts, it is a good idea to wait. Our office has counseled many people over the years, helping them find the best solution for their situation. If you would like to talk about filing a Chapter 7 Bankruptcy, or a related topic, please contact us.
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