Bankruptcy is a legal proceeding that allows consumers to remove some unsecured debts. Most consumers in Florida choose Chapter 7, but there are pros and cons.
The cons of Chapter 7
One con of Chapter 7 bankruptcy is that the consumer must sell nonexempt assets, such as second vehicles. The trustee in charge of the case values the assets, sells them and divides the proceeds among creditors.
All Chapter 7 filers must pass a means test, which determines if a consumer has enough disposable income to pay debts. It is a one- or two-part test that compares their gross income to the state median of a similar-size household.
A bankruptcy only discharges certain unsecured debts, such as medical and credit card debt and past-due utilities. It also only erases past due debts and not current secured debts or utilities, and it doesn’t erase mortgage liens.
The pros of Chapter 7
A pro is that some state or federal exemptions may save nonexempt property up to a certain dollar amount. However, the filer can only choose one of them, and some states don’t recognize federal exemptions, including Florida. Another benefit of Chapter 7 is that the filer does not have to list assets bought or income earned after filing.
While Chapter 7 stays on the credit report for 10 years, consumers can get credit within one to three years after discharge. Chapter 7 bankruptcy is usually the simplest type of bankruptcy that is closed in four to six months. All bankruptcy chapters include the automatic stay, which temporarily bars creditors from taking collection action.
If a filer doesn’t qualify for Chapter 7, Chapter 13 allows them to repay debts slowly. However, they should weigh the pros and cons of each option and consider other alternatives to pay debt.
