What is the downside of filing for bankruptcy?
The one downside to filing Chapter 7 bankruptcy is that you may lose assets to pay off your creditors. Generally, your retirement and personal effects are safe. You will likely be able to keep your vehicle, but you will have to keep any vehicle loans.
But, if you have a lot of equity in your home, you are probably better off looking into a Chapter 13 (payment plan) before a Chapter 7 (discharge and fresh start).
This is because the homestead exemption in Arizona, or your state, may not be large enough to protect a large amount of equity. The “homestead exemption” allows you to keep your primary residence if it has less than a certain amount of equity. That amount did increase in 2022.
If you file a Chapter 7 and a large amount of home equity is your primary asset, the Bankruptcy Trustee will probably sell your home to cover your debts. So, if you have a large number of assets, including home equity, a Chapter 7 bankruptcy may not be your best option. Bankruptcies can also affect some employment industries, like the banking industry where financial security is highly monitored.
Brittany Labadie is the Managing Partner at Lewis Labadie. She has been working with Lewis Labadie since it opened. Her current focus is with adoption cases, including juvenile adoptions, adult adoptions, foster care adoptions, same-sex adoption, surrogacy adoptions, and when necessary termination of parental rights. She works throughout the State of Arizona.