Blog > 2021 > September > Main Advantage of Filing a Chapter 7 Over Debt Settlement
When you have financial problems, you have several choices. If you cannot qualify for Chapter 13 reorganization because you do not have enough income, you can file Chapter 7 liquidation or settle your debt. There are pros and cons for each, although filing Chapter 7 is usually the better option.
If you are having trouble with your finances, contact a bankruptcy attorney today to discuss your options.
As soon as you provide your bankruptcy attorney with your finances, they can determine whether you qualify for Chapter 13. One of the documents you file as part of the bankruptcy is the means test. If your income does not meet the means test requirements, you will not be able to file Chapter 13.
However, you might be thinking you can settle your debt because you’ve heard that you can’t keep your assets if you file Chapter 7. That is not always the case.
When you settle debt, you must pay your creditors some money. Yes, you do save some money. However, the money you save is taxable. The Internal Revenue Service (IRS) will count this as extra income. This is the major downside of debt settlement. This option could also take years to pay off the debt.
Most people who file Chapter 7 do not have a home and have very few assets. However, the Chapter 7 laws do allow you certain exemptions. First, the money you save is tax-exempt. That means if you save $10,000 on credit card debt, the money you save is not taxable as it would be with debt settlement.
Your credit is most likely low if you are filing for bankruptcy, so the damage a bankruptcy could do to your credit is minimal. However, many creditors are willing to give you credit once the bankruptcy court discharges your old debt. They know that you have taken credit counseling as a requirement of filing bankruptcy; thus, creditors are more willing to give you another chance. You do not have this benefit with debt settlement.
The number of exemptions through Chapter 7 could change frequently, and your attorney will let you know what those amounts are. The federal laws provide exemptions for a motor vehicle, household goods, appliances, furnishings, crops, jewelry, animals, tools you need for work, real estate equity, musical instruments, and more.
If you are married and file jointly for bankruptcy, the bankruptcy court doubles the amounts. For example, you might have $25,150 in exemptions if you were to file yourself, but if you and your spouse file, you can exempt $50,300.
Contact us to discuss your options if you have financial problems, including filing Chapter 7 bankruptcy and starting with a clean slate. Give us a call to schedule a free case evaluation.
If you are looking for ways to get debt-free, don’t hesitate to contact us today through our website or give us a call at to schedule your free consultation.
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