The decision to file for bankruptcy is a significant one that can affect your life in profound ways. In some ways it’s devastating, but in most cases, it has helped millions of people get out of financial trouble, repay debts, and get many debts discharged in the process.
That said, it’s essential to understand the pros and cons of filing bankruptcy in Florida, specifically under Chapter 7 and Chapter 13, as it can help guide you in making the best decision for your financial future.
Not sure if Bankruptcy is right for you? Contact Ziegler Diamond Law today for a free consultation about your bankruptcy case. Continue reading to learn more about the benefits and drawbacks of filing bankruptcy.
Introduction to Debt Relief
When facing overwhelming debt, it’s important to know that you have options. Debt relief is a broad term that covers various strategies to help individuals or businesses reduce or eliminate their financial obligations. Filing bankruptcy—whether through Chapter 7 bankruptcy or Chapter 13 bankruptcy—is one of the most well-known debt relief options available. However, before making a decision, it’s crucial to weigh the pros and cons of filing bankruptcy and consider all possible solutions.
An experienced bankruptcy attorney can guide you through the bankruptcy process, explain the different debt relief options, and help you determine the best path forward for your financial future. Whether you’re considering a fresh start through Chapter 7 or a manageable repayment plan under Chapter 13, understanding your choices is key to regaining control over your finances. Remember, the cons of filing bankruptcy should be carefully considered alongside the potential benefits, and professional advice can make all the difference in achieving lasting debt relief.
General Bankruptcy Pros and Cons
Filing for bankruptcy is a significant decision in your financial life. Bankruptcy is a legal process, supervised by the court, which formally addresses unmanageable debts. That said, whether you’re filing Chapter 7 or Chapter 13, there are a few general pros and cons to consider. They include but aren’t limited to the following:
Pro: Automatic Stay – Regardless of the chapter, an automatic stay is issued immediately upon filing. This can give filers much needed relief from all aggressive collection action like lawsuits, wage garnishments, and calls from creditors. This legal provision ensures that creditors must halt collection efforts, providing immediate financial relief to those filing for bankruptcy.
Con: Impact on Your Credit – You can think of bankruptcy as taking one step backward today in order to take a lead forward in the future. That said, bankruptcy will remain on your credit report for 7-10 years depending on the type field and will significantly impact your ability to obtain credit at fair interest rates.
Pro: Total Debt Discharge/Restructuring – Depending on if you file for Chapter 7 or 13, your debts can be totally wiped out (Chapter 7), or restructured in Chapter 13 allowing you to make affordable payments on all or portions of your debt. Learn more about each in the following sections.
Con: Stigma – No matter how you slice it, there’s a stigma (and a public record) attached to bankruptcy. However, the stigma is not the reality. Under the right circumstances, filing bankruptcy can help put you and your family in a much better financial situation.
Continue reading to learn more about the specific pros and cons of Chapter 7 and Chapter 13 bankruptcies in Florida. Need help deciding which option is best for you? Contact us to speak with a bankruptcy lawyer you can trust.
Effects on Credit
One of the most significant concerns for anyone considering filing for bankruptcy is its impact on their credit report. A bankruptcy filing can remain on your credit report for up to 10 years, depending on the type of bankruptcy, and may make it more difficult to obtain credit or loans during that period. This can affect your ability to secure favorable interest rates or even qualify for certain types of credit.
However, bankruptcy is not the end of your financial journey. With the right approach, you can begin rebuilding your credit after bankruptcy. Making consistent, on-time debt payments and keeping your credit utilization low are important steps in restoring your creditworthiness. An experienced bankruptcy lawyer can offer valuable advice on how to navigate the credit reporting process and develop a strategy to improve your credit score over time. While filing for bankruptcy does have lasting effects, it also provides an opportunity to reset your finances and work toward a stronger financial future.
Bankruptcy Process
The bankruptcy process is designed to provide relief to those struggling with unmanageable debt, but it involves several important steps. Whether you are considering Chapter 7 bankruptcy or Chapter 13 bankruptcy, the process begins with filing a petition in bankruptcy court. After filing, you’ll attend a meeting of creditors, where the bankruptcy trustee and your creditors can ask questions about your financial situation.
In a Chapter 7 bankruptcy, the trustee is responsible for identifying and liquidating any non exempt assets to pay creditors. This type of bankruptcy is often referred to as liquidation bankruptcy. In contrast, Chapter 13 bankruptcy involves creating a court-approved repayment plan, where you make monthly payments to a trustee who then distributes the funds to your creditors over three to five years.
Throughout the bankruptcy process, an experienced bankruptcy attorney can help ensure that all paperwork is completed accurately, deadlines are met, and your rights are protected. Navigating the bankruptcy court system can be complex, but with the right guidance, you can complete the process and move toward a more stable financial future.
Chapter 7 Pros and Cons
Pro: Fresh Start
Filing for Chapter 7 bankruptcy is like taking a much-needed breath of fresh air. It gives you the chance to shake off many of your unsecured debts and start afresh. Discharge eligible debts under Chapter 7 typically include unsecured debts such as credit card debt, personal loans, and medical bills. Chapter 7 can discharge eligible debts, meaning those intimidating credit card balances? Gone. Those relentless medical bills? Wiped out. Personal loans and other eligible debts can also be eliminated. It’s like getting a do-over for your financial life.
But hold up, it’s not a complete sweep. Some debts are stubborn and don’t disappear that easily (i.e., non-dischargeable debts). Think of things like student loan debt, some tax dues, or child support payments. These stick around even after Chapter 7. So while it offers a new beginning, remember, some bills will keep knocking at your door.
Con: Non-exempt Property Liquidation
A significant drawback of Chapter 7 bankruptcy is the potential for property liquidation. Assets deemed non-exempt by the bankruptcy court may be sold to pay off your creditors, which might include extra vehicles, valuable collections, or secondary residences.
In most cases, those filing Chapter 7 get to keep most of their home, car, and other types of personal property (up to a limit) due to exemptions. If you’re wondering what do you lose in Chapter 7 bankruptcy, learn which assets may be at risk and how exemptions protect essential property.
Pro: Quick Resolution
Another advantage of Chapter 7 is its relatively fast process. The entire process of Chapter 7 bankruptcy, from filing to discharge, is typically completed within a few months. Compared to other types of bankruptcy, a Chapter 7 bankruptcy filing can be resolved within a few months, allowing you to move on sooner. For comparison, typical Chapter 13 repayment plans usually last for three to five years. However, it’s important to know that Chapter 7 bankruptcies stay on your credit for 10 years.
Con: Qualification Limitations
Chapter 7 bankruptcy has specific eligibility requirements, including passing the means test, to determine if you qualify. To qualify for Chapter 7 bankruptcy, you need to pass a “means test,” which takes into account your income, expenses, and family size. If you don’t pass, you may need to file for Chapter 13 bankruptcy instead. Here’s a snapshot of the Chapter 7 means test formula:
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Step One – Calculate your monthly income
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Step Two – Calculate your annual income
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Step Three – Compare your income to households of the same size in Florida
If your income is less than the average for your family size, then you automatically qualify for Chapter 7. However, if it’s more, you’ll need to complete the official Means Test Calculator form to see if you qualify.
Pros and Cons of Chapter 13 Bankruptcy
Pro: Retaining Property
The key advantage of Chapter 13 bankruptcy is that you get to keep all your property, including non-exempt assets. You repay your creditors through a court-approved payment plan, which is specifically designed to repay creditors over a period of three to five years. Depending on your income, you may only have to pay a portion of your debt. But, filers with a high enough income may be required to pay their financial obligations in full.
Con: Length of Time
Bankruptcy proceedings under Chapter 13 take much longer than Chapter 7. The entire repayment plan can stretch up to five years, during which time you must live under the court’s supervision. However, one ‘pro’ of Chapter 13 bankruptcy is that it only stays on your credit seven years from the filing date.
Pro: Possibility to Reschedule Secured Debts
With Chapter 13, you can reschedule certain secured debts, potentially lowering payments. Further, you may have the opportunity to cram down certain secured debts, such as car loans and potentially some mortgages, reducing the debt to the property’s value and modifying the interest rate.
Pro: Opportunity to Pay Off Non-dischargeable Debts
Chapter 13 allows the repayment of non-dischargeable debts, including certain tax debts, missed mortgage payments, and child support obligations, over the life of the plan. However, in most cases, you’ll have to pay down your non-dischargeable debts fully to receive a discharge at the end of your repayment plan.
Con: Limited Financial Freedom
During your repayment plan under Chapter 13, you must seek the court’s permission to incur new debt or make substantial financial decisions. This can limit your financial freedom over several years. Your bankruptcy attorney can work with you to potentially amend your plan and request the courts amend your plan to include new debts.
Bankruptcy and Assets: Asset Protection
One of the biggest concerns for individuals considering bankruptcy is what will happen to their assets. Bankruptcy law distinguishes between non exempt assets—which may be used to pay creditors—and certain assets that are protected, or “exempt,” under federal or state law. These exemptions can include specific amounts of equity in your home, car, or personal property.
An experienced bankruptcy attorney can help you understand which of your valuable assets and personal property are protected during the bankruptcy process. By carefully planning before filing for bankruptcy, you may be able to safeguard certain assets from liquidation. Knowing the rules around asset protection is essential to making informed decisions and ensuring you retain as much of your property as possible while seeking debt relief.
Alternative Debt Solutions
Filing for bankruptcy is a powerful tool for debt relief, but it’s not the only option available. Before moving forward with bankruptcy, it’s wise to explore alternative debt solutions such as debt consolidation, credit counseling, and debt management plans. These approaches can help you pay off debts and regain control of your financial situation without the long-term consequences of bankruptcy.
An experienced bankruptcy attorney can assess your unique circumstances and recommend the best debt solution for your needs. Credit counseling can provide education and support, while debt consolidation and management plans may offer a structured way to pay down your debts over time. Exploring these alternatives can help you achieve a fresh start and financial stability, allowing you to address your debts without the need for a bankruptcy filing.
Speak With a Florida Bankruptcy Attorney About Your Options
Bankruptcy laws can be complex, and the process can be stressful and confusing. It’s crucial to speak with an experienced bankruptcy attorney who can guide you through the process, clarify your bankruptcy options, and help determine the best solution for your financial situation. You should also be aware of the things you shouldn’t do if you’re considering bankruptcy, as certain actions can make filing more difficult.
Remember, filing bankruptcy is not a failure but a tool to regain control of your financial life. Contact Ziegler Diamond Law for your free consultation with a bankruptcy lawyer in Florida – Let us help you take the first step on your journey to survive bankruptcy and gain financial stability. If you have questions about bankruptcy, visit our Bankruptcy FAQs to get the answers you need.
