If you qualify for Chapter 7 bankruptcy, you will be able to discharge the majority of your debts while avoiding lawsuits from your creditors. In addition, the bankruptcy itself is often discharged within two to four months, leaving you free to begin rebuilding your life. Before you run to the courthouse to fill out the paperwork, however, you must consider that a Chapter 7 bankruptcy can cause just as many problems as it solves.


A Chapter 7 Bankruptcy Will Damage Your Credit


Perhaps the most obvious negative consequence of filing for Chapter 7 bankruptcy is the effect it has on your credit. The bankruptcy will appear on your credit report as soon as you file and will not be removed for ten years. Even if you change your mind and successfully have the bankruptcy dismissed, it will not be removed from your credit report until the reporting period expires.


The effect that the bankruptcy will have on your credit score varies depending on what your credit score was when you filed. The lower your credit score is when you file for bankruptcy, the less the bankruptcy will damage it. Although you can work to mend your credit score over time, the bankruptcy will still be there for future lenders and employers to see every time your credit is pulled.


You Will Lose Any Non-exempt Property


Before you file for Chapter 7 bankruptcy, you should discuss your potential property exemptions with your attorney. All states have an exemption list for Chapter 7 bankruptcy that differs from the federal exemptions. You may have the option to choose between the state exemptions and federal exemptions, or you may be required to take the state exemptions. Your ability to choose your exemptions will differ depending on the state in which you live.


Any property you own that is not exempt will be seized by the bankruptcy court and sold to pay your creditors. This could result in you losing major assets such as your home or car. If you have been granted partial ownership of someone else’s property, that individual’s property can also be liquidated and used to pay off as much of your outstanding debt as possible.


Some Debts Cannot Be Discharged


Before you file for Chapter 7 bankruptcy, make sure that the debts you owe are eligible to be discharged. Debts such as child support, alimony, or back taxes cannot be eliminated through bankruptcy. In addition, a Chapter 7 bankruptcy does not protect you from a government garnishment that arises due to your failure to pay a debt that cannot be discharged.


In some cases you may be able to discharge your student loans, but this is highly unlikely. Student loans can only be discharged if you can prove that you suffer from an extreme financial hardship. Although many debtors who file for Chapter 7 bankruptcy do so because of a financial hardship, an individual must prove that his financial status will not improve in the future. This is almost impossible for most consumers to do. Even if you could prove that your earnings were unlikely to increase, a student loan discharge is always at the discretion of the bankruptcy court judge.


Your Co-signers Will Be Responsible for Your Debt


If you needed a co-signer to take out a personal loan or finance any of your purchases, that co-signer is legally responsible for the debt should you default. When you file for bankruptcy, you are declaring yourself financially unable to repay the debt. Your creditor will then pursue your co-signer for the full amount that you owe. The co-signer’s credit will be damaged and he may be subject to a lawsuit from the creditor. This can destroy your relationship with the person. If you are considering filing for Chapter 7 bankruptcy, make sure to warn your co-signers of what is about to occur. Although they may not be able to pay your debt, you can prevent a lawsuit from taking them by surprise.


If you are desperately in need of a fresh start with your debts or your creditors are threatening to sue you, filing for Chapter 7 bankruptcy may be the best course of action. Keep in mind, however, that a Chapter 7 bankruptcy isn’t a cure-all. You may lose your property, your friends, or even be unable to discharge your highest debts. Your attorney can evaluate your financial situation and help you decide if the benefits of bankruptcy outweigh the disadvantages.