If you’re struggling to pay your bills and feel like you have no options left, it may be time to consider filing for bankruptcy. However, several factors must be considered before you take this step. We’ll explore these options and more in this article on the pros and cons of filing for bankruptcy.
If you’re considering bankruptcy, you might first hear about Chapter 7 (or straight bankruptcy). Unlike other forms of bankruptcy, Chapter 7 allows you to discharge some or all of your debts.
Do I Qualify For Chapter 7 Bankruptcy?
When you do not have a sufficiently high or regular income to enable you to pay off debts, a straight liquidation bankruptcy under Chapter 7 may be the best choice for you. Chapter 7 does provide you the opportunity to avoid almost all of your debts without making any payments. Sometimes referred to as a “total debt liquidation bankruptcy,” or a “straight bankruptcy,” Chapter 7 has generally been used by people who have few assets but who carry a large amount of unsecured debt like credit cards, medical bills, personal loans, auto deficiencies or monies due from old apartment leases.
To file for Chapter 7 bankruptcy, you must meet the income guidelines. You may be eligible to file Chapter 7 Bankruptcy if you meet the following household size and income limits:
- With a single-person household, your monthly income may not exceed $5,625.92, and your annual income may not exceed $67,511.00.
- With a two-person household, your monthly income may not exceed $6,687.58, and your annual income may not exceed $80,251.00.
- With a three-person household, your monthly income may not exceed $7,714.00, and your annual income may not exceed $92,568.00.
- With a four-person household, your monthly income may not exceed $8,956.75, and your annual income may not exceed $107,481.00.
A huge pro with Chapter 7 is that most people feel they’re able to put their financial situation behind them more quickly than they would be opting for another form of bankruptcy…which allows them to get on with their lives!
Filing bankruptcy can save time and energy. One of the most appealing aspects of filing for bankruptcy is that it offers immediate protection from creditors. After you file for bankruptcy, only certain payments will continue—the rest will be wiped away. When other types of relief don’t work, many people take comfort in knowing they won’t have to deal with harassing phone calls or letters anymore.
Put a stop payment on creditor collection efforts immediately. In addition to wiping out debts for good, Chapter 7 also stops collection agencies from harassing you about old debts. Even if a creditor does sue you after a bankruptcy discharge (an extremely rare occurrence), their ability to collect from you ends when your case is discharged because you no longer owe them anything.
Stop wage garnishment and repossession efforts. Wage garnishment happens when creditors obtain a court order instructing an employer to automatically withhold part of an employee’s paycheck until their debts are paid off; not paying student loans is one of the most common reasons for wage garnishment. Auto repossession happens when creditors repossess cars under similar circumstances; often, drivers get behind on auto loans due to unexpected events like sudden unemployment or significant health issues.
Cut back on interest rates. By eliminating debt in Chapter 7 bankruptcy, you can save money by reducing how much you pay in interest over time. If any of your credit cards have high-interest rates, Chapter 7 might be beneficial to save money down the road.
However, like most things in life, there are pros and cons to consider when deciding whether or not Chapter 7 is right for you. Be sure you understand the negative consequences of filing for bankruptcy before you take the plunge.
A Chapter 7 bankruptcy can remain on your credit report for up to 10 years. How much this affects your overall credit depends on your credit before filing for bankruptcy. Many people can actually increase their credit score faster by filing for bankruptcy. This is because, with a fresh start, you can start paying your bills on time, improve your debt to income ratio, and begin building a positive financial foundation.
Filing bankruptcy now might make it harder to do later if something worse happens. For example, if you complete the bankruptcy process under Chapter 7, you can’t file for another Chapter 7 bankruptcy for six years. The six years is counted from the date you last filed for bankruptcy. This can cause financial problems in the future in the event of job loss or other unforeseen circumstances that impact your ability to pay your debts.
All debt isn’t considered “dischargeable debt.” There are several types of debts that cannot be discharged by filing for Chapter 7. Child support, recent tax debt, student loans, and certain types of court-ordered damage awards are not dischargeable with bankruptcy.
Learn More about Washington State Bankruptcies
Are you overwhelmed with harassing phone calls from your creditors? The Law Offices of Lauber Dancey PLLC provides free consultations to help you recover peace and stability in your financial life. As a Lauber Dancey client, you will receive exceptional judgment-free advocacy from an attorney who is truly invested in helping you get back on solid ground.