What Happens When You File Chapter 7 Bankruptcy?
We talk a lot about the benefits of bankruptcy. But the question we hear most often is “what’s the catch?”
So let’s talk about the consequences of filing Chapter 7 bankruptcy in Michigan. Consequences can be positive or negative, and we want to talk about both. Because in the end, it is a cost/benefit analysis that you have to make when you decide whether to file. Let’s look at the various potential consequences of filing Chapter 7 bankruptcy.
You Will Lose Property in a Chapter 7 Bankruptcy
Whether you want to believe it or not, no matter what Chapter you file (7 or 13), you will have to give up some of your property to help repay your debts. Depending on the amount of debt you have, this can include your home, your car, or even expensive jewelry or electronics you have. Also, remember that you may not be the only one affected. Anyone that co-signed on your loans can have their property seized.
For those that have significant amounts of property, Chapter 7 bankruptcy can cause additional concerns. This is because the trustee assigned to your case can sell off your property in order to pay your debts. You need to understand the Michigan and Federal bankruptcy exemption rules and choose the exempt properties wisely.
Your Credit Will Be Damaged If You File Chapter 7 Bankruptcy
There are many factors that impact your credit score. A good credit score is essential to being able to take out car loans, mortgages, or personal loans. Negative factors on your report will lower your score, making you a risky borrower to potential creditors. A Chapter 7 bankruptcy filing will definitely be a negative mark on your credit report.
While many negative factors, such as hard inquiries can drop off your report within 2 years, it can take up to ten years for a bankruptcy to be removed from your credit report. You will most likely be rejected outright for a credit card or loan, or receive a loan with very unfavorable terms and high interest rates.
This must be weighed against the positive impact a bankruptcy can have on your life. A Chapter 7 bankruptcy filing can help you rebuild your life with a fresh start. You can begin to rebuild your credit score by making on-time payments and keeping your balances low. You won’t have outstanding debts hanging over your head, which will help you financially in the long run.
The Psychological & Emotional Impact of Chapter 7 Bankruptcy
Filing for bankruptcy is a stressful process, from getting up the nerve to go through with it to the process and aftermath. It is common for bankruptcy filing to make one feel anxious, angry and depressed. It is key to take care of your mental health during times of financial distress.
Many that file claim it makes them “feel like they’ve failed.” However, it is important to remember what you are GAINING in bankruptcy instead of what has been lost. You are gaining independence and a fresh start. When you boil it down, the debt is what is causing the psychological turmoil in most cases. Which means that once your case is filed, you will begin to reduce the debt and therefore, the stress.
Get a free consultation from a top Downriver bankruptcy attorney to see if Chapter 7 bankruptcy is right for you.
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