January 12, 2022

When Should You File Chapter 7 Bankruptcy?

Are you facing some significant debts? You might be wondering if filing for Chapter 7 bankruptcy is the right thing for you to do. Working with a bankruptcy lawyer will help you decide if filing for bankruptcy is the right course of action for you.

Ask a Bankruptcy Lawyer: When Should You File Chapter 7 Bankruptcy?No one ever wants to file for bankruptcy, but there are times when filing for bankruptcy is the best option that you have available to you. While having to file for bankruptcy is never an ideal situation, it might be the best shot you have at clearing your debts.

Several conditions need to be met in order for you to file for bankruptcy. That said, while some people certainly can file for bankruptcy, that doesn't always mean that they should. If you meet all the qualifications for filing bankruptcy, there may still be other options available to you that you should consider. If you are considering bankruptcy, here are a few things to consider to determine if this is the right call for you:

You Have More than $10,000 in Dischargeable Debt

Dischargeable debt means debt that can be cleared out by filing for bankruptcy. Several types of debt can fit into this category. This includes credit card debt, medical bills, personal loans, and utility bills that are overdue.

If these add up to over $10,000, then bankruptcy might be an option for you. However, things like child support, alimony, and student debt cannot be cleared out by bankruptcy, which is something to keep in mind.

You Can't Keep Up with Your Monthly Payments

When you go into debt, one thing that your creditors might have you do is set up monthly payments. This is a way for you to pay off your debts in increments.

But there are other things that you'll need to make payments for each month. You need to pay your mortgage or your rent, spend money on food, and pay for insurance. When you file for bankruptcy, this will erase all your unsecured debts, which could help you get your financial health back.

The Stress of Dealing with Creditor Is Too Much

There are lots of challenges that come with being in debt. One of the biggest ones is having to deal with creditors. You may feel like you are being constantly hounded by them, and that kind of stress can start to eat away at you.

If you're feeling like calls from creditors are getting to be too much for you to handle, then you might want to consider looking into bankruptcy with the help of a lawyer. Once you file for bankruptcy, this provides you with an automatic stay, which means your creditors will stop harassing you.

You're Having Trouble Getting More Credit

There will come a time in almost everyone's life where being able to get credit will be important. However, before getting credit, lenders are going to take a look at your credit report. If they see you are in a significant amount of debt, they'll be hesitant to offer you any more credit.

Once you file for bankruptcy, it might be initially hard to get more credit. However, with time, patience, and some work, you can begin to effectively rebuild your credit score.

What Are the Consequences of Filing for Chapter 7?

While there are plenty of cases where an alternative to filing for bankruptcy is probably the better option, sometimes filing for chapter 7 is the best way to clear your debts and live a stress-free life again.

However, there are consequences to filing bankruptcy that you should know about before you file. Being aware of the potential consequences will help you and your lawyer determine if this is the best choice for you and your needs. Here are some consequences you should consider before filing chapter 7:

You'll Have a Record on Your Credit Report

Your credit report is an important document when it comes to your financial health. It acts as a summary of your financial history, and it includes information like your name, current and past addresses, your social security number, and other types of personal information.

Once you file for bankruptcy, this will be noted on your credit report. For the next 10 years, this note will stay on your report, meaning that anyone who looks at it will be able to see that you filed for bankruptcy. This may make it more difficult to get more credit, especially at first.

Higher Car Insurance Rates

Another issue that you might run into after filing for bankruptcy is higher insurance rates for your vehicle. When you purchase a vehicle, you'll need to pay insurance rates. Most insurers will use a credit-based approach to determine how much your rates should be.

The unfortunate reality is that that means that if you file for bankruptcy, your rates are likely to get pretty high. As frustrating as that can be, it's within these companies' legal rights to charge more based on your credit, which is something to bear in mind before you file for chapter 7.

A Difficult Time Renting an Apartment

When you start apartment-hunting, landlords are probably going to ask for a series of documents to prove that you will be a reliable tenant. One of these documents might be your credit report, which they'll take into consideration when you apply.

Unfortunately, the bankruptcy note on your credit report might seem like a red flag to landlords. They'll be less likely to consider your application once they see this note on your report. After filing for bankruptcy, you also won't be able to take out a mortgage for at least 2 years, which is something to remember too.

A Hard Time Finding a Job

One of the most common reasons why people need to file for bankruptcy is because a business endeavor unfortunately failed. If that sounds like your situation, then the next logical step is to look for a new source of income.

But many potential employers will look at your credit score when you apply for a job. This isn't the case for all employers, but it certainly is for some. This can be pretty frustrating, which is why it's important to think about it before you file for bankruptcy.

You'll Have to Wait Before Filing for Bankruptcy Again

It might be hard to see yourself filing for bankruptcy once, let alone a second or a third time. But life can take some unexpected turns, and you may wind up in another situation where filing for bankruptcy is your best chance at getting your life back.

If you need to file a second time, you will need to wait several years after your previous filing. How long that you end up needing to wait will depend on a few factors, including what chapter you filed last time and what chapter you're looking to file this time.

If you are in a serious situation and you are considering filing for bankruptcy, it's important to understand who can and who should file for bankruptcy. Working with a qualified lawyer will you find the right course of action for you. Get in touch with Thomas K. McKnight to learn more.

get a free Consultation

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.