Over 73% of Canadians have some kind of outstanding debt. Are you one of them? If so, you’re probably wondering whether or not filing for Chapter 7 bankruptcy is the right choice.
Filing for bankruptcy should be an emergency option. If you’re at the point where you’re no longer able to keep your head above water, it may be time to take the jump and choose bankruptcy.
We’re here to talk about a few pros and cons of filing for Chapter 7 bankruptcy so you can make an informed decision. Read on to learn more.
Pros of Filing for Chapter 7 Bankruptcy
The idea of filing for bankruptcy probably sounds like a bad thing, right? When you hear of someone going bankrupt, it’s never with a positive tone. So why would you actively choose to file for bankruptcy?
There are a few benefits of filing for Chapter 7 bankruptcy if you’re in financial trouble. Here’s a quick overview.
No Repossessions or Collections
If you’re in serious debt, some of your belongings may be repossessed and your debts may go to collections. This is a stressful situation, and it makes paying off your debts even harder and more frustrating. Now what?
Well, when you file for Chapter 7 bankruptcy, those repossessions and collections will pause. You won’t have to deal with any more wage garnishments or threatening phone calls either.
You’ll be able to keep most of your possessions after filing for bankruptcy. You will lose some things (more on that later), but you’ll be in a far better position than if you just let things continue as they were.
Debt Relief
The biggest benefit of filing for Chapter 7 bankruptcy is, of course, debt relief. Debt can be life-ruining when it’s left unchecked for too long. Being able to wipe away all of that debt, even if it’s at a significant cost, can dramatically improve your quality of life and lower your stress levels.
You can get rid of the majority of your debt with only a few exceptions (which we will discuss later). You’ll have to receive credit counselling in exchange, but that’s reasonable and it will help you avoid getting into this situation again in the future.
Credit Flexibility
When you’re already in enough debt to be considering filing for Chapter 7 bankruptcy, you’re in a tight spot. If you ever need loans, you’ll have a hard time finding a reliable lender. While no credit check loans are available and useful, you’ll still be limited.
Your credit, at this point, won’t be great. You won’t be able to improve it until you pay off your debts or file for bankruptcy, and the latter of those two options may be the easiest one.
Yes, it will damage your credit, but you’ll be able to start building it back up again instead of staying underwater.
Cons of Filing for Chapter 7 Bankruptcy
So with those things in mind, filing for Chapter 7 bankruptcy sounds like a good idea, right? Why don’t more people do it? If it erases your debt and leaves you free to start fresh, shouldn’t it be more common?
Well, it’s not all good, and there are a few downsides you should know about before making your decision.
Negative Effects on Credit
Unfortunately, when you file for Chapter 7 bankruptcy, your credit will suffer. As we mentioned before, you can bring your credit score back up with consistent effort, and you’ll likely be in a better position, but it is something you need to keep in mind.
You’ll have the bankruptcy impacting your credit for ten years. This means it will be more difficult to get loans, rent an apartment, and more. You become a higher risk in the eyes of lenders.
Bankruptcy may be unavoidable, and even if it’s not, it may still be the best option. Just know that your credit will suffer.
Potential Costs
You will need to pay for bankruptcy. If you’re in a position in which paying is easy, your bankruptcy case may be invalid. It’s only around $300 if you include administrative fees, but that can be a lot of money if you’re barely staying afloat.
You can pay in installments if you’re struggling.
Potential Loss of Property
While it’s true that you won’t have to deal with repossession anymore, that doesn’t mean that you won’t lose any property. Luxury items in particular tend to go first. If you have spare cars or a second home, it’s almost certain that you will lose them.
What you get to keep may vary depending on where you live, so be sure to check before committing to bankruptcy.
You May Not Cancel Every Debt
Most debts can be wiped away by filing for Chapter 7 bankruptcy, but this isn’t true for all of them. Make sure your debts qualify before deciding whether or not bankruptcy is the best option for your situation.
Student loans, child support, and certain legal debt will still be your responsibility, among other things. It’s important to talk to a financial expert to determine if you’ll still be in debt after filing.
Is Chapter 7 Bankruptcy the Right Choice for You?
Filing for Chapter 7 bankruptcy is a big deal, and you shouldn’t take this decision lightly. Make sure you know that it’s the right choice for you before you make this big of a commitment.
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