The Disadvantages of Chapter 7 Bankruptcy
Bankruptcy is often promoted in the media as an easy way of getting oneself out of one’s financial troubles. However, life after bankruptcy is rarely considered in the rush to rid oneself of the stress and strain of financial overstretch. The bottom line is the bankruptcy should be avoided at all costs.
The downsides of bankruptcy should not be underplayed, and anyone consider filing for bankruptcy would be well advised to consider them before proceeding down the bankruptcy route.
One of the biggest disadvantages to chapter 7 bankruptcy is the fact that you lose the majority of your assets including the roof over your head!
Then there is the hurt to one’s pride, as your details will be published in various places, including the local media. Bankruptcy is not something that one can keep hidden.
It is also important to realise that not all debt can be discharged under chapter 7 bankruptcy, such things as alimony payments, unpaid taxes and student loans are just three of a longer list of things that cannot be discharged and always have to be repaid.
Another thing to bear in mind and think about is your relationship with your bank. The problem here is that after bankruptcy you are unlikely to have one, as banks will consider you an unnecessary risk.
Of course it may be that one’s financial situation is such that one has absolutely no choice but to file for bankruptcy. Something like 90% of bankruptcies in the US are filed under chapter 7, making chapter 7 the most popular form of bankruptcy.
However, you cannot simply file under chapter 7 and a few weeks later are debt free. In 2005 the Bankruptcy Abuse and Consumer Protection Act was bought in to counter the growing practice of individuals claiming bankruptcy when they did in fact have the means to repay. Now anyone wishing to enter into a chapter 7 bankruptcy has to undergo both credit counselling and a means test to ensure that chapter 7 is indeed the best option for all concerned.
The main difference between a chapter 7 and chapter 13 bankruptcy, is that under chapter 7 bankruptcy the debtors assets are sold and the money raised distributed amongst the creditors, the debtor then being declared not liable for any further outstanding debt not covered by the sale of assets. Chapter 13 bankruptcy however, is a repayment plan where creditors are repaid over a period of 3 to 5 years, with no forced sale of assets.
