When Chapter 7 Bankruptcy Is Better than Chapter 13

Most people choose Chapter 7, if they have a choice. Here are some reasons why.

Most people who file for bankruptcy choose Chapter 7 because it's fast, effective, easy to file, and doesn't require payments over time.

Advantages of Chapter 7 Bankruptcy

A typical Chapter 7 case is opened and closed within three to six months, and the person filing emerges debt-free except for a mortgage, car payments, and certain types of debts that survive bankruptcy, such as student loans, recent taxes, and back child support.

Although you can lose property in Chapter 7, most filers don't. Bankruptcy lets you keep most necessities -- if you have little to begin with, chances are good you'll be able to keep most items (unless you pledged the item as collateral when you bought it).

However, not everyone is eligible to use Chapter 7. If your income is sufficient, after subtracting what you'll spend on certain allowed expenses and monthly payments for child support, tax debts, secured debts (such as a mortgage or car loan), and a few other types of debts, to fund a Chapter 13 repayment plan, you won't be allowed to file for Chapter 7.

Drawbacks of Chapter 13 Bankruptcy

Probably the main reason most people prefer Chapter 7 is that it doesn't require you to repay any portion of your debts, as Chapter 13 does. And if you use Chapter 13, you must complete the entire three- to five-year repayment plan in order to have your remaining debts discharged (unless the court lets you off the hook early, for hardship reasons). The majority of those who file for Chapter 13 are unable to complete their plans.

If you choose to convert from Chapter 13 to Chapter 7 (and you are eligible to file under Chapter 7), all of the money you paid into your plan for dischargeable debts will have been for naught. If you handle your debts outside of bankruptcy, your debts will be reduced by the amount you repaid during your plan.

Despite this major potential drawback, there are some good reasons why people who are eligible for both types of bankruptcy choose to use Chapter 13.

Copyright 2005 Nolo

Client Reviews
I was provided with a free consultation and was given great advice. I would definitely recommend Chip Parker to anyone who needs assistance with financial law. Meagan
Chip's law firm helped me through the bankruptcy process with ease. The staff was always willing to answer questions and ensured that their answers were provided in a timely manner. A great firm to represent you. Kevin
Mr. Parker and Mr. DuFresne along with their staff went the full mile to help my wife and I through some tough financial difficulties. They take great pride in doing what thy do and I would recommend them to anyone. Robert
Chip Parker autographs his work with excellence. Finding an attorney with real integrity in today's world of law is not an easy task. Chip believes in balancing the scale of Justice and removes the blind fold so the injustices are clearly seen. Thanks for all the good you and your firm achieve. Joy
I took a very complex problem to Chip, and he spent a generous amount of time outlining specific options. Chip has an amazing ability to grasp the important issues and quickly narrow down the key points. He is the best person to have on your side. Phenie