Bitter Pills: Analyzing the Potential Debt Resolution Advantages of Chapter 7 Bankruptcy

Bankruptcy - Business Person holding an empty wallet

Although unpleasant, bankruptcy is often one of the only means that individual debtors could resolve their debt issues. In some instances, Chapter 7 bankruptcy can even be more advantageous than any further attempts at debt consolidation.

Bankruptcy is one of the most difficult and traumatic life events faced by many debtors today. In some cases, however, bankruptcy is often the only way to resolve issues with crippling debts that can no longer be paid or acquiesced.  Chapter 7 bankruptcy remains one of the most common forms of bankruptcy declared by individuals and businesses alike; these organize the debts to be repaid according to their priority through the gradual liquidation of all but the most essential assets belonging to a person or business.

Even if bankruptcy does not reduce debtors down to abject destitution thanks to exemptions, it does prevent them from seeking lines of credit that, if used appropriately, could be used consolidate debts or cover for further adverse events such as ill health or accidents. Thus, pursuing a declaration of bankruptcy is not for everyone.

Why Declare Bankruptcy

As hard as it is to stomach, bankruptcy provides some modicum of relief from debt by staggering all debts according to their immediate priority and paying them off one by one. It also stops creditors from pursuing increasingly aggressive (and sometimes damaging) legal action. It can also lead to some peace of mind, as the calls and letters for outstanding debts are no longer mailed in.

Although the debtor’s ability to pay would be compromised for a decade, Chapter 7 bankruptcy can simplify the process of handling debt significantly—much more so than having to deal with further late payments and struggle with mounting debts. A debtor is also denied the use of credit cards, a mixed blessing for some individuals. Although hard on one’s credit score, bankruptcy may besignificantly easier to explain to a future creditor and have a significantly lower impact than prolonged debt repayment. The setbacks experienced through bankruptcy may, at times, be less than those of late-payment of debts.

Chapter 7 bankruptcy is hardly the only option available for many debtors. Companies and individual business owners, for instance, can take advantage of Chapter 11 provisions to work out a means to consolidate and negotiate with debtors to settle outstanding debts. One of the best ways to understand how bankruptcy options weigh in on one’s personal debt situation is to consult a Chapter 7 bankruptcy lawyer. Knowledgeable legal experts are often available for consultation in major urban areas like Salt Lake City.

Weighing Alternative Options

Stressed businesswoman

Although people have many reasons to want to avoid bankruptcy—including the reluctance to part with possessions or take the emotional burden of becoming bankrupt. Some might find that the appropriate selection of debt consolidation and negotiations with debtors can help reduce the burdens of the debts to one more manageable in the long run. Likewise, the courts may decide to convert a debtor’s case into Chapter 13 bankruptcy, which would obligate

Others, meanwhile, may find bankruptcy to be the bitter pill that needs to be swallowed to start over financially. The typical threshold where bankruptcy is preferred to any continued means of debt payment or consolidation is if the debts incurred exceed more than 50% of the debtor’s average monthly income and the majority of the debts cannot foreseeably be resolved within the next five years.

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