Sometimes, filing for Chapter 7 Bankruptcy is the best option an individual has to choose from when it comes to getting out of debt. However, it is important that debtors fully understand bankruptcy and thoroughly research all other financial solutions before filing. Chapter 7 Bankruptcy can be a smart step, but only if it is used when the individual has exhausted all other options and has come to the decision that there is no other way he or she can realistically repay or get out of mounting debts.

Chapter 7 Bankruptcy is also known as “liquidation” and is currently the most common type of Bankruptcy in America. It may be filed for by individuals or by businesses. Those wishing to file individually will need to file for bankruptcy in a federal court and will benefit from hiring a bankruptcy lawyer. Having a lawyer can make the entire process much simpler and quicker. Debtors will have their assets, excepting those that are exempt, sold and the money made will be used to repay creditors. There is no guarantee that one will be completely debt free once the bankruptcy is complete, however. Some debts may not be discharged. Rules about which types of debts will remain and which will be discharged vary from state to state, and knowing and understanding these rules can have a big effect on whether or not filing for bankruptcy is really the best option in an individual’s specific and personal situation. Businesses or companies wishing to file for Chapter 7 Bankruptcy will have to stop operating. The company assets will be sold and, as with an individual bankruptcy, the profits will be used to repay creditors.

Once a bankruptcy is complete, debtors should be aware that the bankruptcy will remain on their credit reports for ten years. Following a bankruptcy, it can be difficult to get credit or loans. Because of this, many people and businesses that could potentially benefit from filing bankruptcy refuse to do so. It should be noted, however, that while a  bankruptcy may not reflect favorably on one’s credit report, having excessive, unpaid debts is even worse. If Bankruptcy will allow an individual to clear up his or her debts and make amends for past mistakes, then it can actually have a favorable impact on the overall credit score. Debtors should use the ten year span to build good credit as much as possible and to help build up their credit reports for the future.

In short, filing for Chapter 7 Bankruptcy should never be the first debt management tool one turns to. Individuals should try to set up payment plans with creditors, reduce excess spending and budget money carefully, and even try for new and higher paying jobs to avoid bankruptcy. If, however, none of these solutions are available or will provide the type of debt management one requires, then he or she should look into Chapter 7 Bankruptcy as an option. While it is not for everyone, many people find that filing for bankruptcy is the first step in a brighter, less stressful future and in reaching financial freedom.