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Posted by Edna on Feb 9, 2015

Drawbacks and Benefits of Chapter 7 Bankruptcy

Sometimes you just want to throw up your hands and give up when the going gets really tough, and there are instances when that is precisely what you need to do. There are times when it is just better to cut your losses and start fresh. That is the main purpose of Chapter 7 of the Bankruptcy Law designed to help and protect debtors who are in dire financial distress. As bankruptcy lawyer Erin B. Shank, P.C. points out on her website, coping with overwhelming debt can be physically, emotionally and mentally exhausting.

However, deciding to file for bankruptcy is a big step and should be undertaken with full knowledge of what you are getting into. Here are two of the major drawbacks and benefits you can expect when filing for Chapter 7 bankruptcy

Credit Score

Declaring any kind of bankruptcy is sure to affect your credit, and a Chapter 7 filing will usually remain on your record for 10 years. However, if you don’t file for bankruptcy and fail to meet your financial obligations, it will hurt your credit anyway, and bankruptcy is something that is easier to explain than multiple hits on your score. You can slowly rebuild your credit if you don’t fall into the same traps as before, such as huge credit card debts or a ruinous mortgage.

Property

Under Chapter 7, you agree to liquidate all your non-exempt assets in order to pay what you can to your creditor, so you may lose some of your prized possessions. On the other hand, state exemptions will let you keep at least the basics such as your primary residence, a vehicle, clothes, furniture, and even jewelry up to a certain value. While you may lose your stamp collection, you will discharge most of your debts. You can always accumulate property again once you get clear of Chapter 7 which creditors cannot touch.

Each bankruptcy case is different, and each state has its own set of bankruptcy rules. You should consult with a bankruptcy lawyer in your state for a more comprehensive assessment of your case.

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