The Top 5 Pros and Cons of Filing Bankruptcy

The following is a list of the top five pros and cons of filing bankruptcy based on my personal opinion and my 20 plus years as a practicing bankruptcy attorney. This is not meant to replace the advice of your own attorney,  but to give you some additional insight if you are thinking about filing bankruptcy.  Although there are several chapters under the Bankruptcy Code, I will be focusing specifically on Chapter 7.  This is a form of bankruptcy most people are familiar with. It is sometimes known as a liquidation bankruptcy.

THE PROS

1.   Relatively Inexpensive             
The cost to file bankruptcy is relatively low compared to the amount of debt most people who file a Chapter 7 will ultimately discharge. There is a court filing fee that you must pay along with paying your attorney. The cost of a bankruptcy attorney varies from state to state but, you can expect to pay anywhere from $1200 to $2000 on average.

2.    Stops All Legal Actions             
When you file for bankruptcy the court issues what is called an automatic stay. This simply means that all creditors must cease all collection activity including lawsuits; wage garnishments; and collection calls.  The clerk of the bankruptcy court will mail letters to all creditors listed in your bankruptcy filing.

3.    No Payments to Creditors             
Unlike a chapter 13 bankruptcy filing, there is no payment plan in a Chapter 7 bankruptcy. When you file a Chapter 7 bankruptcy the only creditors you will likely continue to pay are secured creditors like your mortgage company and your automobile finance company if you are looking to keep those items.

4.    You Can Walk Away From Most Debts             
When you file a Chapter 7 bankruptcy you are seeking to discharge or eliminate all dischargeable debts. Most unsecured debts such as medical bills; credit cards; and utility bills are dischargeable.  After a debt is discharged in bankruptcy you no longer have to pay it.

5.    Short Turnaround Time From Filing to Discharge             
The amount of time you have to wait for your discharge in a Chapter 7 is relatively short as compared to a chapter 13 bankruptcy. From the filing of your Chapter 7 case to the discharge of your debts is approximately 90 days. Although if you have issues with your case, it may take longer.
 
THE CONS

1.    Cost Is High For The Poor             
For people of limited means having to pay $1500 to $2000 to hire a Bankruptcy attorney is simply out of reach.  And that does not include the court filing fee, which as of the writing of this post is $338 for a Chapter 7 bankruptcy.  Although you may find attorneys who are willing to handle your case for a reduced fee or handle it pro bono, (meaning free).

2.    Not DIY Friendly             
Filing bankruptcy is a legal process. It is not set up for the individual who is not well versed in bankruptcy practice to file a case on their own.  Although some do try and succeed, I would always advise anyone seeking to file in bankruptcy case to seek out the advice of a licensed attorney experienced in bankruptcy.

3.    Does Not Protect Secured Assets If You Are In Default             
If you are behind on your mortgage payments and wish to keep your house, filing a Chapter 7 bankruptcy will not protect your home. The same goes for your car payments, or any other secured asset that you have fallen behind on.

4.    Large Hit to Your Credit Score             
The filing of a bankruptcy case will cause your credit score to drop. How much your credit score will drop varies from person to person and from credit score to credit score. But a drop of anywhere from 50 to 150 points is possible.

5.    10 Years On Your Credit File             
The fact that you filed a bankruptcy case will remain on your credit file for 10 years. Because of this fact, you may wish to add a consumer statement explaining the circumstances that led to your bankruptcy. This way, future creditors may take this into account when deciding whether or not to grant you credit.
 
I hope the above list of pros and cons of filing Chapter 7 Bankruptcy have given you some insight.  If you decide that filing bankruptcy may be right for you, you should seek out the advice of a licensed attorney experienced in bankruptcy. An experienced bankruptcy attorney will be able to address the pros and cons I listed as well as provide options that fit your individual situation and circumstance.  Please take a moment to comment on this article and share it with someone.