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Chapter 7 bankruptcy in Connecticut: Weighing the pros and cons
Understanding the pros and cons of Chapter 7 bankruptcy may help people determine if it is the right option for their needs.
Recently, USA TODAY reported that the average American household’s income in 2016 was $59,039. The average U.S. household, on the other hand, reportedly carries debts totaling $137,063. In an effort to regain control of their finances, some in Connecticut and elsewhere who have fallen behind may consider declaring Chapter 7 bankruptcy. Since such a decision should not be entered lightly, understanding the pros and cons may help people determine if it is the right option for their needs.
Pro: The Process is resolved relatively quickly
Compared to other debt relief options, Chapter 7 bankruptcy cases are resolved relatively quickly. With few exceptions, bankruptcy courts may issue discharges, finalizing Chapter 7 cases, within 60 to 90 days after the meeting of the creditors. These meetings are typically held within 21 and 40 days from the date people’s petitions are filed. Thus, people may be on the road to a fresh financial start within four to five months of declaring Chapter 7 bankruptcy.
Con: Declaring bankruptcy may have lasting negative effects on credit
While filing for Chapter 7 protection may help people quickly regain control of their finances, it is important to keep in mind that this action is disclosed on filers’ credit reports. Depending on various factors, a bankruptcy filing may remain people’s reports for up to 10 years. This may affect their ability to obtain future loans, mortgages or other lines of credit.
Pro: Retain salary and wages
After paying the associated filing fees, people’s financial obligations cease when they declare Chapter 7 bankruptcy. Other options require filers to apply all their disposable income toward the repayment of their debts. After their petitions for Chapter 7 bankruptcy are filed, however, people keep all their salary, wages and other earnings, which may help them begin rebuilding their credit and financial security.
Con: Liquidation of nonexempt assets
Although those who declare Chapter 7 bankruptcy do not formally make payments toward their debts, their nonexempt property may be subject to liquidation. The types of assets that may be classified as non-exempt include vacation properties or second homes, second motor vehicles, valuable items and antiques, and stocks or bonds. Under the bankruptcy code, these assets may be claimed by the trustee assigned to the case and liquidated. The proceeds of these sales are then applied to certain debts. There are, however, exemptions in place that protect some valuable assets, such as people’s wedding rings, their primary residences, and their clothing and household items.
Pro: Discharge of debts
Under most circumstances, people’s unsecured debts are discharged by the court at the end of their bankruptcy cases. This may include medical debts, credit card balances and other balances. Upon this action, those who have been granted the discharge are released from their financial obligations for the eligible debts.
Con: Not all debts are eligible for discharge
While people may be relieved of many of their debts through a Chapter 7 bankruptcy case, not all debts are dischargeable. Even after declaring Chapter 7, filers may still be liable for alimony and child support, certain education benefits and loans, certain taxes and personal injury judgments resulting from drunk driving claims.
Seeking legal guidance
For people in Connecticut who are struggling with financial challenges, navigating the legal system alone may make an already difficult situation even more stressful. Therefore, those who are considering declaring bankruptcy may find it helpful to work with a lawyer. An attorney may guide them through the process, and look out for their best interests at each stage.