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The Benefits of Bankruptcy: 8 Reasons Why Filing for Chapter 7 Can Be the Smart Move

The Benefits of Bankruptcy: 8 Reasons Why Filing for Chapter 7 Can Be the Smart Move

Filing for bankruptcy is a challenging decision, full of complex considerations and unclarity. But if you’re drowning in debt, it can also be a lifeline to a fresh start.

People facing overwhelming financial hardship are often reluctant to declare bankruptcy because of fear, whether about their credit score, social stigma, sense of defeat, or something else. But the legal option of bankruptcy exists for a reason. It allows you to reduce or eliminate your debt, giving you the relief you need and a new chance at success.

There are different types of bankruptcy, each with its own pros and cons. For most individuals, the options are Chapter 7 or Chapter 13. Which one might be right for you depends on your specific circumstances, so it’s important to carefully choose your course of action together with a qualified bankruptcy attorney.

This article will focus on the benefits of Chapter 7 bankruptcy, since it’s the most common.


One of the primary benefits of filing for Chapter 7 bankruptcy is the discharge of eligible (unsecured) debts.

In New York State, Chapter 7 allows individuals to wipe out unsecured debts such as credit card balances and medical bills.

Once the bankruptcy process is complete, these debts are legally forgiven, providing a clean slate.


By eliminating burdensome debts, Chapter 7 bankruptcy enables individuals to break free from the cycle of financial stress and start anew.

This can be particularly beneficial for those who have faced unforeseen circumstances such as job loss, medical emergencies, or other setbacks.


Filing for Chapter 7 bankruptcy triggers an automatic stay, which means creditors may no longer harass debtors by any means. They cannot make harassing collection calls, write letters, commence or continue with lawsuits, garnish wages, or any other action.

The automatic stay provides individuals with immediate relief and allows them to focus on the bankruptcy process without the constant pressure from creditors.


NYS bankruptcy laws provide exemptions that protect many assets from being liquidated to pay off debts.

These exemptions generally include home equity (up to $179,950 in NYS for married couples), personal property, and retirement accounts.

This means that individuals can retain some or all of their essential assets while still benefiting from debt discharge.


Unlike Chapter 13 bankruptcy, which involves a repayment plan, debts discharged under Chapter 7 bankruptcy typically do not require individuals to repay a portion of their debts over time.

This simplicity makes Chapter 7 a viable option, particularly for those with limited income.


Filing for bankruptcy does initially have a negative impact on an individual’s credit score. But so does delinquent payment or nonpayment, and Chapter 7 bankruptcy provides an opportunity for a fresh financial start.

What’s more, individuals can begin rebuilding their credit score immediately upon receiving the discharge. With careful planning, a credit score can be built back up relatively quickly.


Individuals qualify for Chapter 7 bankruptcy by taking a “means test” to determine whether their income is low enough to file for it. If they fail the means test, they don’t qualify to file a Chapter 7 bankruptcy to eliminate unsecured debt. However, they still might qualify for a Chapter 13 bankruptcy and still be able to reduce some debt and eliminate other debt.

It’s possible to earn significant monthly income and still qualify for Chapter 7 bankruptcy if an individual has a large family and significant expenses, such as a high mortgage.


Compared to other bankruptcy chapters, Chapter 7 typically involves a faster process. In New York, the entire procedure can be completed in a matter of months.

This allows individuals to resolve their financial issues swiftly and move forward with rebuilding their lives.

Filing for Chapter 7 bankruptcy in New York State can offer significant benefits for individuals facing insurmountable debt. It’s a legally protected, structured way to catch a second wind and get a second chance. It’s not the end; it’s a new beginning.

For any questions or assistance, contact us.