Top Ten Reasons For Filing Chapter 7 Bankruptcy

There are many good reasons for parties in trouble with their creditors. The following is a non-exhaustive list of 10 reasons Chapter 7 bankruptcy makes sense for debtors:

1. Eliminates liability for dischargeable debts incurred prior to the filing of a bankruptcy petition. Bankruptcy can eliminate credit cards, repossession deficiencies, mortgage deficiencies, rent deficiencies, utility bills, medical bills and attorney’s fees that were not incurred fraudulently. 

2. Eliminates tax liabilities that qualify for discharge. Bankruptcy can eliminate tax liabilities that were due more than 3 years prior to the bankruptcy filing where the tax return was filed more than 2 years prior to the bankruptcy filing and if the tax liability was assessed at least more than 240 days prior to the bankruptcy filing and the failure to pay the assessed tax was not willful. 

3 .Stops all creditor collection efforts and harassment, legal proceedings to collect a debt and utilities from being shut off. Upon filing a bankruptcy the automatic stay provisions of the bankruptcy code go into effect and literally stay or stop collection activity giving you the opportunity to catch your breath and get your feet back under you. 

4. Loss or reduction of employment income. In the event that you suffer an unforeseen negative change in your employment circumstances, bankruptcy can assist you in eliminating your legal obligation to pay certain debts, which allows you to better allocate your financial resources towards payment of your household necessities like mortgage payments or car payments. 

5. Financial difficulty due to divorce. First, there is the obvious difficulty associated with going from a dual income household to two single income households with corresponding increases in expenses, which bankruptcy can help by eliminating the amount of monthly debt service. However, for couples that are splitting amicably, filing a joint bankruptcy prior to the divorce simplifies the divorce proceedings by eliminating the necessity of assigning debt that was typically incurred for the joint benefit of the spouses to only one spouse. 

6. Eliminates liabilities guarantee on behalf of a business. Most creditors require small business owners to personally guaranty the liabilities of the business. In the event the business fails, the creditor will look to the guarantors assets to satisfy the debt. Bankruptcy cuts off the business creditor’s right to pursue the individual for these liabilities. 

7. Protects your wages from garnishment. Creditors enforcing judgments in Illinois can garnish up to 15% of the gross wages of a judgment debtor. Filing bankruptcy stops the garnishment and may allow some debtors to recover some their garnished wages from the creditor. 

8. Prohibits the placement of liens against your residence or other real property. Creditors enforcing judgments in Illinois can record a memorandum of judgment against your residence, which could ultimately result in the creditor foreclosing on your home. Filing bankruptcy allows debtors to protect their home from such activity by creditors if the bankruptcy is filed before the lien is perfected. 

9. Allows you to take control and responsibility for your liabilities. Ultimately the only thing the law, society in general and your creditors expect is for you to take responsibility for your financial situation. Most people experiencing financial difficulties have taken responsibility for their bills by dutifully paying them over the course of many years. If you are unable to continue to pay your bills due to an unfortunate or unexpected negative change in circumstances, bankruptcy allows you to responsibly take control of your financial situation in a controlled and orderly manner through court regulated proceedings. 

10. Allows you to achieve a fresh start and begin rebuilding your credit. One of the primary goals of Chapter 7 of the bankruptcy code is to allow honest but unfortunate debtors a “fresh start.” Primarily this is achieved by allowing debtors who qualify the opportunity to discharge their debt through proceedings under Chapter 7. It also allows people with homes or cars to keep those assets so long as they can afford them and there is not an excessive amount of equity in those assets. Most people filing for Chapter 7 bankruptcy have better credit after their case is discharged than they did in the period immediately preceding the case filing. Continuing to maintain a good credit history after discharge allows you to continue to rebuild your credit over the course of the rest of your life.

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