We get a log of clients who call our Seattle bankruptcy lawyer office and ask; “I have lots of money owed in unsecured debt. My family has researched talked to family and friends who recommended the benefits of filing Chapter 7 bankruptcy. I know, however, that it cannot be all good because it sounds too good to be true. Can you tell me more about the drawbacks of filing Chapter 7 and whether it’s actually a good choice for me.”
At every consultation, we go over everyone’s situation. Look at their assets, look at their debts and make sure that the path we take is the right one. Here are a few of the most common reasons why a Chapter 7 bankruptcy might not be a good option. Keep in mind a Chapter 13 may be preferable if a Chapter 7 won’t accomplish the goal of keeping all of your property and discharging your debt. In addition, a Chapter 20 bankruptcy (filing a chapter 7 and then a chapter 13) is in a very small number of cases another option.
Chapter 7 bankruptcy overview
Chapter 7 bankruptcy allows Seattle debtors to receive a discharge all or some of their unsecured debt. There are a few categories of debts that cannot be discharged, and there can be ramifications if a full review isn’t done properly. But before you decide to file Chapter 7 bankruptcy it’s smart to review bankruptcy laws with a Seattle bankruptcy attorney. So ask your Seattle bankruptcy attorney if your debts can be discharged and understand the ramifications of your decisions.
It’s a good idea to slow down and find out all you can about the bankruptcy process. Too many debtors and attorneys rush to file without really understanding what they are doing or taking the time to do their due diligence and find out if their particular situation warrants a Chapter 7 bankruptcy. With that in mind, let’s take a brief overview of some of the negatives to filing for Chapter 7 bankruptcy.
Reasons filing Chapter 7 bankruptcy may not be a good idea
1. Chapter 7 may not discharge all unsecured debts.
Filing Chapter 7 bankruptcy could be a mistake for you if the vast majority of debt you have cannot be discharged. For example, if you have only secured debt, child support debt, certain taxes and student loan debt, filing Chapter 7 may not be the right option. However if your dischargeable debt is still substantial; then its definitely a good idea to think strongly about filing for Chapter 7.
2. Chapter 7 will ruin your credit.
Most debtors already have a very low credit score due to repossessions, defaults, debt/income ratio, or wage garnishments. For those with a good credit score, their credit score plunge. A myth is that filing for Chapter 7 may also limit your ability to get new credit. While this is true of major loans like house loans, business loans and expensive cars; most clients are fine with waiting a few years to rebuild their credit. You will still have access to quality used car loans, small credit cards and other credit to start to rebuild. You should also have no problem finding housing to lease so long as you can afford it after your bankruptcy. Finally, bankruptcy does remain on your credit report for up to 10 years.
Buying any large item such as a home will also be impossible for several years; typically as early as 2 years after filing. In addition, due to tougher lending laws which are slowly relaxing, you may also have to save for a down payment if you want to buy.
3. You might lose property.
Although some debtors have few assets and are not concerned about liquidation, other debtors may be forced to sell assets and other items that they would otherwise want to keep. A careful review with your Seattle bankruptcy attorney is necessary to determine if you can protect your property using available exemption laws.
4. You have not investigated other options.
As mentioned above, many debtors move to file bankruptcy before really considering whether there might be an alternative option for solving their financial issues. For example, it might be a mistake to file bankruptcy if you have not analyzed your budget, cut your living expenses, considered additional employment to generate more income, or talked to a financial planner about consolidating your debt. I typically do not suggest debt consolidation but in some cases this may be an option if the payments are low in relation to your income and expenses.
At the same time, if you have more then $10,000 in debt, then considering filing for bankruptcy may still be your best move even considering the above. It can take years, even decades, to pay off $15,000 to $20,000 of debt. Interest will continue to accrue all the time. So getting a clean slate may be a great move if other options aren’t ideal or won’t safely work.
5. You think your situation may be worse in the future.
Under some conditions, such as a severe medical issues or short term chronic problems, it may be a mistake to file Chapter 7 too soon. For example, if you think you might have more medical debts in the future for a surgery or physical therapy; filing now may be premature and you may want to wait. In fact, if you finalize a Chapter 7 and receive a discharge now you cannot file another Chapter 7 case for at least 8 years from the date you last filed for bankruptcy. Chapter 13 does remain available to those who need it, however. So, there are still solutions available if you need to file immediately to protect from garnishments, foreclosures, or repossessions.
Check us out at Johnson Legal Group and contact us today if you are in the Seattle area and are looking for an attorney to help decide if you should file for bankruptcy.
Bankruptcy can still be the right move