Many people are not able to pay off their debts and declare bankruptcy. There are several chapters of bankruptcy but the most common are Chapter 7 and Chapter 11. Both have their own merits and demerits. We will discuss Chapter 7 Business Bankruptcy to understand how it can help an individual. It can also protect LLCs and corporations when they are unable to repay. In this, the trustee collects all the properties and uses them to pay off the debts. Some properties are exempted, which are categorized as the necessities of modern life.
Advantages and disadvantages of Chapter 7 bankruptcy
Chapter 7 bankruptcy gives a chance to the debtor relief from the debt to start afresh financially. However, it is important to know what its merits and demerits are:
Relief from the debt
The major goal of Chapter 7 bankruptcy is to get relief from all your debts. The debtor can be debt-free in a few months only after opting for it. The entire financial burden can be taken off and the debtor can start afresh his financial journey. Moreover, you can get relief regardless of the amount you owe. This option is open for individuals, small business owners, corporations, LLCs and even self-employed persons.
No more collections
After you declare Chapter 7 bankruptcy, there will be no more calls from debt collectors. They will stop calling you for collections and repossessions. This is a big relief to all debtors, who receive calls at odd hours for payments.
Disadvantages of Chapter 7 Bankruptcy
As they say, everything comes for a price; there are several cons that you should be aware of. Some of them are elaborated on below:
Poor credit history
The major disadvantage of Chapter 7 bankruptcy is that your credit score will reflect a poor credit history. This report will be shared with all creditors in the financial sector. Due to this, the debtor may not be able to take up any loan in a few coming years.
You still have some debts to pay
Not all debts are discharged under this type of bankruptcy. You will have to pay certain debts, which are not covered in Chapter 7. For instance, you will need to pay child support and alimony.
It is a good idea to discuss with experts before deciding. They can assess your financial standing in a better way and suggest the most effective way to reduce your debts.