The Pros and Cons of Chapter 7 Bankruptcy

PROS

• Eliminates (by discharge) liability on all unsecured dischargeable debt.
• Immediate fresh start.
• Future income (attributable to the post Bankruptcy services of the Debtor) is the Debtors.  It does not go to pay the Bankruptcy creditors (other than on secured claims in order to keep the secured item).
• No Repayment Plan to propose and follow through with.
• No debt limits are set.
• Usually less attorney's fees than for a Chapter 13 Bankruptcy and considerably less fees than for a Chapter 11 Bankruptcy.
• A corporate Chapter 7 with assets will pay IRS or EDD unpaid tax withholdings prior to non-tax claims, increasing the likelihood of reducing the amount of the equivalent '100% penalty' claims that can be asserted against corporate officers.

CONS

• The Chapter 7 Trustee may sell assets (including any lease or the Debtor's business) having more than nominal value over and above any liens and exemptions.
• No discharge from recent income tax liability, or income tax liability where returns are not filed or not filed recently or fraud is involved in the return.
• If the appropriate action is filed by a creditor, a debt may be excepted from discharge if it arises by way of certain types of fraud or willful and malicious injury.
• The automatic stay will be lifted in favor of a secured party or landlord as to property or a leasehold if it is of no value or of nominal value over and above liens and exemptions.
• No discharge for a partnership or corporation.