The Pros and Cons of Filing Chapter 7 Bankruptcy

Chapter 7 Bankruptcy

By the end of 2022, the average household debt in the US will be $101,915, and as this steadily increases, more Americans are considering filing for bankruptcy. In the US, there are six chapters of bankruptcy laws, of which the most common options are Chapter 7, a.k.a. ‘liquidation,’ and Chapter, a.k.a. ‘reorganization.’ With so many people struggling to pay back their debt, there’s confusion as to whether a bankruptcy chapter is the right option.

If you’re a numbers person, then it’s important to know that Chapter 7 is chosen much more frequently than Chapter 13. In 2020, there were 381,217 Chapter 7 bankruptcy filings, making up a whopping 70 percent of all bankruptcies. Of course, that doesn’t mean it’s the best choice for all bankruptcy filings. So, let’s have a look at the pros and cons to determine why it’s so popular (or not the best option in some cases).

The Pros

Filing for Chapter 7 bankruptcy comes with a number of benefits, such as:

It Imposes an Automatic Stay

For people in debt, collection efforts by creditors are a major source of stress. By filing for Chapter 7 bankruptcy, you’ll get protection from creditors almost immediately. That’s because it triggers an automatic stay order on all actions by creditors to collect payments, whether they send collection letters, make phone calls, or garnish your wages.

Immediate Debt Relief

A great thing about filing for Chapter 7 is that your discharge is virtually automatic. If it’s your first time filing for bankruptcy and you pass the means test (and aren’t trying to defraud your creditors), you’re very likely to get a discharge.

By filing Chapter 7, you effectively wipe out most kinds of unsecured debt, such as personal loans, medical bills, and credit card debt. Once the bankruptcy court grants you a discharge, you won’t be obligated to pay back these debts. But if you’d like a clearer idea about which debts you’ll need to pay, it’s best to consult an experienced bankruptcy Chapter 7 attorney at AttorneyDebtFighters.

You Can Keep Most of Your Property

Statistics by the American Bankruptcy Institute show that over 95 percent of all Chapter 7 filers end up keeping all their belongings. Bankruptcy laws protect exempt property from your creditors and lenders. Exempt property can’t be claimed, whether it’s a family heirloom, a piece of furniture, or your car.

That being said, if you choose to keep your car and home but haven’t paid off the mortgage, you’ll need to continue making payments. But if you think you won’t be able to catch up on payments, then it’s best to give up your car and the loan.

Faster and Cheaper Process

For those seeking immediate debt relief, filing for Chapter 7 bankruptcy involves a simple process. The entire timeline takes between four months to half a year, so you’ll get a chance to start fresh almost immediately. Another benefit is that it’s cheaper, so even though there are some fees involved, they can’t prevent you from starting the filing process.

You Can Rebuild Your Credit

If you’ve been waiting for an opportunity to start anew with your credit score, this is your chance. Though it will be difficult to qualify for loans soon after you file for bankruptcy, your score will improve as time passes. As long as you maintain a consistent budget and healthy financial habits, you’ll be able to open up new lines of credit.

The Cons

Now that you know the pros of filing for Chapter 7, you’re probably wondering why some people don’t file for it. That’s because there are some cons, such as:

You Need To Pass The Means Test

One barrier to filing for Chapter 7 bankruptcy is the eligibility criteria. According to the means test, you need to make less than the median income in your state. The court will compare your income for the past half year to what you owe in debt. And if you have enough money to eventually pay off your debts, then the judge won’t allow a discharge.

If your income is below the median, you pass the test and receive a discharge. But if it doesn’t, step two of the means test involves documenting how much money you spend on essentials, which are allowable expenses. And if you have to complete step two, it’s important to be careful with your account. Ideally, you should enlist the help of an experienced bankruptcy Chapter 7 lawyer to avoid any mistakes. 

Your Credit Score Will Drop

As mentioned above, your credit score will drop soon after you file for bankruptcy, making it difficult for you to take out loans. Not to mention, a Chapter 7 bankruptcy will stay on your credit report for up to ten years.

While your opportunities to take out new lines of credit may increase, keep in mind that you’ll need to hold off on unnecessary, major purchases for the time being. This can include going back to school, buying a home, or even taking out a new credit card.

It Won’t Erase All Your Unsecured Debts

Though Chapter 7 discharges most of your unsecured debts, you’ll still need to pay some debts after filing for bankruptcy. This includes child support, alimony, and tax debts. Though student debts aren’t automatically discharged, you can take additional steps to discharge them.


Chapter 7 bankruptcy, or liquidation, is a faster method for discharging your debt, but it’s not for everyone. It comes with certain pros, such as immediate debt relief, a chance to start over and rebuild your credit, and getting to keep most of your stuff. But at the same time, it won’t be able to erase some unsecured debts and remain on your credit report for a long time. So, before you decide, it’s best to consult an experienced bankruptcy Chapter 7 attorney about the best option for your situation. 

Amie has a love for numbers and holds a master’s degree in finance. When she’s not playing with numbers or words or pottering in the garden, you can find her in the kitchen roasting her own coffee beans.

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