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What Are the Positive Aspects of Filing For Chapter 7 Bankruptcy?



By:Mike Cibik


What Are the Positive Aspects of Filing For Chapter 7 Bankruptcy?

Bankruptcy has a lot of myths attached to it. Filing for bankruptcy may, in fact, have some positive consequences that can save you from inflicting further financial damage. Unlike most legal cases, bankruptcy is a unique legal situation whose ramifications must be completely understood before filing.


A qualified consumer bankruptcy attorney can best guide and explain the factors you may need to consider when filing a straight Chapter 7 bankruptcy or a Chapter 13 repayment plan case.


Personal Discharge

One of the positives that come out of completing a Chapter 7 bankruptcy filing process is the personal discharge. Personal discharge is a permanent order from the bankruptcy court that prohibits creditors from dissolving your assets for repayment of debts that you incurred before filing. Debts without collaterals (unsecured loans) such as outstanding credit card bills and medical bills are written off on filing bankruptcy.

A downside of personal discharge is that not all debts are waived off. Home mortgages and car loans are not discharged. If these lenders have a lien on your property (home or vehicle), they are free to discharge the loan by foreclosing on your property. Further, alimony, child support, recent taxes (Incurred in the three years leading to bankruptcy) are not waived off. Student loans can be conditionally discharged if you’re able to prove extreme financial hardship.

The discharge benefit does not extend to any other person who has their name on the same loan; it just applies to the bankruptcy applicant. For example, if you and your wife incurred a big loan using the same credit card and you filed for bankruptcy, your wife continues to be liable for payments.


Automatic Stay

The automatic stay is an order by the bankruptcy court that goes prevents lenders from calling you, suing you, or writing you a collection letter, or taking any other action, in order to collect their dues. The stay order comes into effect as soon as you file for bankruptcy and continues till your discharge is issued by the court.


Starting Afresh

Filing for bankruptcy will reduce your credit scoring to zilch and that can be a major reason for concern if you planned to pick up a new loan. But the good news is that you can start rebuilding your credit soon after. It’s common knowledge that banks will not be averse to lending to you, especially shorter lines of credit. Home and car loans can take up to three years. The negative credit scoring will remain on your report for quite some time, but it’s not carved in stone. If you have a positive approach, pay your bills on time, your credit scores will improve with time and things will start turning around in your favor.


“Maybe” a Loss of Property

An undeniable pain point of bankruptcy is the loss of property you may have to face if you file. The “may” is significant since you can escape this consequence. If you are able to exempt all or some of your property, the trustee may not be able to dispose of it. Even if that’s not possible, the trustee may feel that selling will not make him a great deal. For instance, if auctioning your designer clothes will cost around $500 and will fetch $250 at most, the deal may not appeal to the trustee and she may let you keep them.


Lessons Learnt

Filing for a business bankruptcy can lead to personal bankruptcy, especially for small businesses that operate on lines of personal credit. A small business owner’s bankruptcy can trigger a chain reaction on those who extended personal credit to him/her for running the business. By creating a Limited liability Corporation (LLC) or corporation, one can limit personal liability if their business goes under.


Cibik&Cataldo, P.C, have been providing reliable and affordable personal and business finance counseling and superior bankruptcy-related legal services for over 35 years in the Philadelphia, Pennsylvania area. We deal only with individuals, small firms, and business owners. Our attorneys are certified by American Bankruptcy Certification Board and have successfully filed more than 20,000 bankruptcy cases.

If you would like to discuss your case with us please feel free to call us at 215-735-1060.


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