Advantages and Disadvantages of Bankruptcy
Advantages of a Chapter 7 bankruptcy filing:
- There’s no limit to the amount of debt that can be discharged.
- Unsecured debts (as permitted by law) are eliminated or discharged.
- Any wages earned and property acquired after the bankruptcy filing date (except for inheritances) are not subject to claims by the bankruptcy court or creditors.
- There is no minimum amount of debt required to file a Chapter 7 bankruptcy case.
- A Chapter 7 bankruptcy case is often concluded within 90 to 120 days after the date of filing, thereby enabling you to obtain a fresh start and move beyond the burden of your debts relatively quickly.
Disadvantages of a Chapter 7 bankruptcy filing:
- Any non-exempt property is subject to liquidation by the trustee.
- Some debts survive the bankruptcy, e.g., and can be collected after your case is closed.
- Chapter 7 does not cancel secured debts and, if facing foreclosure or repossession, such efforts by the lender are only temporarily stalled by the bankruptcy filing.
- Co-signors of a loan remain liable on the debt unless they likewise file for bankruptcy relief or reach a resolution with the creditor.
- A debtor may only file for Chapter 7 bankruptcy relief once every 8 years.
- Bankruptcy impacts your credit rating.
- It is difficult to voluntarily withdraw from a Chapter 7 bankruptcy filing.
Advantages of a Chapter 13 filing and payment plan:
- You generally are able to keep all of your property, exempt and non-exempt.
- You are afforded a longer period of time to pay your debts than if the bankruptcy had not been filed.
- Debts that are not permitted a discharge in a Chapter 7 case can be reduced in a Chapter 13 bankruptcy.
- You are afforded protection against creditors’ collection efforts and wage garnishment efforts.
- Any co-signors are not subject to collection efforts of the creditors so long as a Chapter 13 Plan provides for full repayment of the debt.
- You are protected against foreclosure by your mortgage lender while making timely payments under the Plan.
- A Chapter 13 bankruptcy may be filed after a Chapter 7 discharge to pay off any remaining liens.
- You may file a Chapter 13 bankruptcy more frequently than permitted under Chapter 7.
- Creditors are separated by classification and receive different percentages of payment.
Disadvantages of a Chapter 13 bankruptcy filing and payment Plan:
- Plan payments come from the debtor’s disposable income (i.e., that amount which remains after expenses are deducted from income) which restricts your cash over the repayment period of the Plan.
- Some debts may survive after the bankruptcy is closed for which you must continue paying.
- The legal fees associated with a Chapter 13 bankruptcy are higher than under a Chapter 7 filing due to the increased complexity. Your debts and repayment Plan can linger for years, thereby burdening future income until Plan completion.
- There is a limit on the amount of debt liability when filing a Chapter 13 bankruptcy. Currently, unsecured debt may be no greater than $383,175, while secured debt must be less than $1,149,525. These amounts adjust every three years, with the next adjustment taking place April 1, 2016.
- Stockbrokers, commodity brokers, and others employed in a similar capacity cannot file a Chapter 13 bankruptcy petition.