Disadvantages of Chapter 7 Bankruptcy

 

Normally, opting for bankruptcy under Chapter 7 can give you a fresh start. It can also give you the chance to repay your creditors in a systematic manner to the degree that you have existing properties to be used as payments. All of your unpaid balances and debts can be erased. But the best things in life are not all free, every advantage carries its equal disadvantage.

 

Hence, try to contemplate first on the drawbacks if you want to file a Chapter 7 bankruptcy case. Here's why:

 

1. The trustee is the one authorized to file the Property Exemption Report.

 

The Property Exemption Report actually classifies your property as "exempt" or "non-exempt". There is a possibility that the Trustee may erroneously list some of your properties as "non-exempt" when it should have been listed as "exempt".

 

In the event that you failed to make immediate objection, the report eventually becomes final after 15 days, thus, giving the Trustee full authority to sell your supposed to be "non-exempt" properties. You will be losing more than you can imagine.

 

2. Right to discharge is not absolute.

 

Whether you like it or not, not all debts will be discharged even if you file a Chapter 7 bankruptcy case. Sec 523(a) of the Bankruptcy Code provides the different debts to be discharged at the same time the various types of debts not included in the discharge granted to individual debtors. Most of these non-dischargeable debts are certain types of tax claims, student loans, alimony, and child support. And if your debt is primarily based on secured loans such as mortgages or car loans, then Chapter 7 will not be of much help.

 

3. Foreclosure notices are only temporarily stopped but not absolutely wiped out.

 

Basically, there are debts that are non-dischargeable as established by the Congress. Some of them are based either on the makeup of the debt or the fact that the debts were acquired due to reprehensible actions of the debtor like drunken driving.

 

A long-term obligation is an example of the non-dischargeable debts as stipulated by the provisions in Chapter 7. So even if filing Chapter 7 can give a temporary restraint upon the immediate foreclosure of the house, things will go back after the bankruptcy case is over and the debtor will be paying those debts all the same.

 

4. You can only file once within 6 years.

 

A second petition will be denied if debtor has been granted a discharge within 6 years. Normally, Chapter 7 usually takes 3-5 months from the date of filing up to the final discharge. This means that you have to wait for a couple of years or so until the 6-year time frame is over before filing another Chapter 7 bankruptcy case.

 

5. It affects one's credit history.