Chapter 7 Bankruptcy Advantages
Like Chapter 13, anyone filing for Chapter 7 Bankruptcy protection obtains the immediate benefit of the Automatic Stay—meaning that all collections, phone calls, wage garnishments, law suits, home foreclosures, evictions, and other collection activities by creditors must stop once the case is filed in the San Jose Bankruptcy Court. Chapter 7 is not a payment plan. If a debtor qualifies by demonstrating that he cannot afford to make monthly payments after taking into account necessary living expenses, then Chapter 7 can offer a short path to a discharge of most unsecured debts like credit cards and medical bills.
Advantages of Chapter 7 bankruptcy include:
- Chapter 7 does not require ongoing monthly payments on most debts.
- Chapter 7 cases are short. Chapter 7 cases generally last only a few months rather than years.
- In some cases, older tax debts can be discharged in Chapter 7 bankruptcy.
Some Disadvantages of Chapter 7 Bankruptcy
Chapter 7 does have certain risks and disadvantages. These include the fact that the debtor may be required to give up some assets to the Bankruptcy trustee if she owns assets with a value greater than she may protect under the available bankruptcy exemptions. Also, if the debtor is self-employed as a sole-proprietor, the Bankruptcy trustee can force the debtor to stop operating her business while the case is pending.
Chapter 7 bankruptcy also does not provide a vehicle for curing a delinquent home mortgage and thereby avoiding foreclosure in the long term as Chapter 13 can. Similarly, Chapter 7 cannot provide a path to pay off non-dischargeable debts such as priority taxes or delinquent child support obligations.
Debtors with property and assets they want to save, debtors with small businesses, and those who are seeking to pay off taxes, for example, are often better protected in Chapter 13 bankruptcy.
However, if a debtor earns less than the California median income for her family size and does not own real estate or other assets with values greater than she can exempt (protect from liquidation), then Chapter 7 bankruptcy may be the best and quickest path to a fresh start for many seeking the protection of bankruptcy in San Jose.
