What is the Downside of Chapter 7?
Credit score effect and social stigma are the two biggest downsides of Chapter 7 bankruptcy. Banks overstate the effects of these downsides, and unfortunately, many people believe bank propaganda. Filing bankruptcy lowers, but doesn’t “ruin,” a credit score. Usually, repeated late payments, chargeoffs, and other negative information have already ruined it. Additionally, while bankruptcy filings are public record, unless you’re rich and famous, the information won’t get out unless you share it.
Basically, bankruptcy is an alarm clock. You can hit the snooze bar and roll over, or get up and make changes. The upside of getting out of bed usually outweighs the downside. Similarly, the upside of Chapter 7, which is outlined below, far outweighs the downside. The upside, quite simply, is a fresh financial start for you and your family. A Chicago bankruptcy lawyer helps debtors maximize their fresh starts. In fact, by the time the filing officially falls off their credit scores, many people who work with lawyers have forgotten they filed at all.
Automatic Stay
Usually, Section 362 of the Bankruptcy Code takes full effect at the moment of filing, and remains in full effect until the judge closes the case. The Automatic Stay stops most adverse creditor actions, such as:
- Repossession,
- Wage garnishment,
- Eviction,
- Creditor harassment, and
- Repossession.
Generally, adverse actions like repossession and foreclosure are easy to stop, but almost impossible to undo. So, if your property is threatened, speak with a Chicago bankruptcy lawyer straightaway.
The Automatic Stay only goes into effect if the party receives actual notice. Complying with this requirement requires attention to detail. For example, if the bank is threatening to repossess Alejandro’s car, multiple parties must receive notice, such as the bank that loaned the money, the company that’s servicing the loan, and the repo company that’s on the hunt for his car.
Asset Protection
“You’ll lose your assets” is another supposed downside of Chapter 7. This statement, while true, leaves out an important word. Bankruptcy filers lose their nonexempt assets. Most people don’t have nonexempt assets. The Illinois exemption list includes:
- Home equity,
- Retirement account,
- Motor vehicle equity,
- Personal property, and
- Government benefits.
In the Prairie State, unwritten exemptions supplement the written exemptions. The best interests of creditors rule is a good example.
Assume Alejandro has a serviceable but beat-up fishing boat. That boat is probably nonexempt. However, the cost of seizing, storing, repairing, and marketing the boat might exceed its auction value. In that case, the trustee (person who oversees the case for the judge) cannot seize it. That action isn’t in the creditors’ best financial interests.
Debt Discharge
Chapter 7 discharges medical bills, credit card bills, and most other unsecured debts. “Discharge” means the judge eliminates the legal obligation to repay a debt. The collateral consequences remain. If Alejandro (we hate to keep picking on him) owes tuition to State U, and State U is withholding his transcript, the school may continue withholding it. His lawyer must make other arrangements.
Some unsecured debts, mostly back taxes, student loans, and child support, are priority unsecured debts which are only dischargeable in some situations.
Connect With a Thorough Cook County Lawyer
No matter what kind of financial problem you are having, bankruptcy could be a way out. For a confidential consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Virtual, home, and after-hours visits are available.
Source:
experian.com/blogs/ask-experian/how-does-filing-bankruptcy-affect-your-credit/
