Filing for bankruptcy is not an easy decision. Still, sometimes it is the best solution to get rid of your overwhelming debts. There are two types of bankruptcy that discharge debts for individuals: Chapter 7 and Chapter 13 bankruptcy. Most people opt to file for Chapter 7 bankruptcy, and you may prefer it, too. However, you must know its advantages and disadvantages before you make a final decision.
Pros of Chapter 7 bankruptcy
Chapter 7 bankruptcy allows you to eliminate your debts and start anew. The positive features of Chapter 7 bankruptcy are:
· It wipes out most of your debts
When there is no more money left for the creditors after the trustee sells your property, the rest of your debts will disappear. However, you need to keep in mind that Chapter 7 cannot discharge the following debts:
- Child support payments
- Taxes of the last three years
- Student loans
- Trust fund taxes
- Criminal fines
- Debts for paying back taxes
Chapter 7 bankruptcy may eliminate these debts, but there are other ways to do so. For example, a family court can suspend child support and alimony payments. In some cases, Chapter 7 bankruptcy can also discharge student loans if you prove at court that paying them will cause you undue hardship in the future.
· Faster than Chapter 13
Chapter 7 bankruptcy discharges your debts within four to six months after filing for it. In contrast, Chapter 13 bankruptcy can take up to five years to be completed. If you want to get rid of your debts fast, Chapter 7 bankruptcy is the best choice.
· Cheaper than chapter 13
Chapter 7 requires fewer fees than Chapter 13 bankruptcy. In Chapter 7 bankruptcy, you would have to pay $274 for administrative fees. The costs of Chapter 13 are at least $310.
Cons of Chapter 7 bankruptcy
Even if Chapter 7 is favorable in some cases, you must also know that bankruptcy also has its downfalls. The cons for Chapter 7 bankruptcy are:
- You will lose property: You may lose your car and house if they are worth more than the exemption limit in Kentucky. Expensive musical instruments, family heirlooms, stocks, vacations homes, second cars and valuable collections are always sold.
- Not everyone can do it: To be eligible for Chapter 7, you need to pass the Means test. If your monetary resources and income exceed the median income of the state of Kentucky, you may not qualify for Chapter 7 bankruptcy.
- It negatively affects your credit score: Chapter 7 bankruptcy can remain on your credit score for up to 10 years. In Chapter 13 bankruptcy, you need to repay your debts, so it will always look better on a credit score than Chapter 7 bankruptcy.
Bankruptcy as a solution
Even with its negative effects, Chapter 7 is still a solution to relieve you from your debts. You might lose things that are valuable to you, but bankruptcy can eliminate debts that you may not be able to repay.