This post is more for the do it yourself bankruptcy (pro se bankruptcy) crowd. Too many times I receive calls from people who file chapter 7 bankruptcy without an attorney to find out that they really messed up because they didn’t understand the good and bad uses of chapter 7 bankruptcy. As with anything, you need to the right tool for the job; bankruptcy is no exception.
Good uses of chapter 7 bankruptcy:
- Discharge (eliminate) most unsecure debts. If your debts primarily consist of credit cards, payday loans, medical bills, old collections, etc., and you are struggling to pay, chapter 7 bankruptcy is a good choice. Chapter 7 bankruptcy relieves you of your debt and gives you a fresh start.
- Stop debt collection. If you are not paying your debts, you are undoubtedly getting constant phone calls and notices, chapter 7 bankruptcy will stop that (see #1).
- Stop wage garnishment. Wage garnishment stops once you file chapter 7 bankruptcy and assuming the underlying debt can be discharged (which is usually the case), chapter 7 permanently stops wage garnishment.
- Stop most lawsuits. Filing chapter 7 bankruptcy will stop most lawsuits against you, mainly debt collection lawsuits.
- Reduce the balance owed on a car loan. This use requires some skill and not everyone can qualify, but 722 redemption allows a person to reduce the balance owed on a car loan to the present value of the vehicle.
Those uses represent the most common and best uses of chapter 7 bankruptcy. Now let’s look at bad uses of chapter 7 bankruptcy. Keep in mind, what I am saying is that the sole reason for your chapter 7 bankruptcy should not be one of the following.
Bad uses of chapter 7 bankruptcy:
- Stop eviction from residential property. Chapter 7 bankruptcy doesn’t really stop eviction. Depending on the landlord’s aggressiveness, you may buy yourself a few weeks, but chapter 7 bankruptcy does not reverse or undue an eviction. Also, as a practical matter, you need to move and find another place to live, that will be harder with a pending bankruptcy (but that is a different article).
- Stop foreclosure on residential property. Chapter 7 bankruptcy does not solve a foreclosure situation. Filing chapter 7 bankruptcy will stop the foreclosure process—temporarily—but you only get maybe 1-3 months. As with eviction, you will need to move, that will be harder with a pending bankruptcy. If you are looking to save your home from foreclosure, only chapter 13 bankruptcy does that.
- Stop child custody or child/spousal support proceedings. Filing chapter 7 bankruptcy does not stop child custody proceedings or child support determinations.
- Eliminate certain debts: Chapter 7 bankruptcy does not eliminate federal or private student loans, back child support, and recent tax debt. Before filing chapter 7 bankruptcy, you need to understand what debts will and won’t be eliminated.
Chapter 7 bankruptcy is designed to give the struggling debtor a fresh start. However, chapter 7 bankruptcy does not forgive all sins. If you are considering bankruptcy, at least consult with a bankruptcy attorney so you can better understand if chapter 7 bankruptcy is the right solution for your specific situation. Most bankruptcy attorneys offer free initial consultations.