Q: I’m looking to file bankruptcy, but I don’t know the difference between Chapter 7 and Chapter 13. What’s the better option?
There are several reasons why filing bankruptcy may be the answer to your debt problems. There are two main types of personal bankruptcy- Chapter 7 and Chapter 13. Each one has its own place where it makes sense for you based on your circumstances.
Typically a Chapter 7 bankruptcy can be much better for most people than Chapter 13 bankruptcy. Chapter 7 is usually quicker than Chapter 13, many people can keep all or most of their property, and you don’t have to pay back a portion of your debts, like in Chapter 13. But not everyone qualifies for Chapter 7 bankruptcy; there are limits on income and assets that you need to check before filing.
A typical Chapter 7 bankruptcy 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 unpaid child support.
Although you can theoretically lose property in Chapter 7 bankruptcy, the overwhelming majority of people who file don’t. Bankruptcy lets you keep most of your personal property, and unless you basically have gold bricks stashed in your basement, chances are good you’ll be able to keep all or most of your property (unless you pledged the item as collateral for a loan).
If a Chapter 7 bankruptcy doesn’t fit your situation, you can explore a Chapter 13 bankruptcy, which includes a repayment plan for some of your debts based on your income and ability to repay. If your income is sufficient to fund a Chapter 13 repayment plan, 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, you won’t be allowed to file for Chapter 7 bankruptcy. You may also not be eligible for Chapter 7 bankruptcy if you are seriously delinquent on your mortgage.
Probably the main reason most people prefer Chapter 7 bankruptcy is that it doesn’t require you to repay any portion of your unsecured debts, as Chapter 13 bankruptcy does. And if you use Chapter 13 bankruptcy, 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 bankruptcy don’t complete their plans, so filers run a very real risk that their debts won’t ultimately be discharged.
The simple answer is that if you are eligible to file Chapter 7 bankruptcy, there is little to no reason to even look at a Chapter 13 bankruptcy. Chapter 7 is clearly the better option. The best way to determine whether you can file for bankruptcy is to contact an attorney; they should be able to give you a good idea of your eligibility within just a few minutes, and you’ll never know if you don’t ask.
If you want a free evaluation of your debt situation, take our Five Minute Debt Test now- it’s quick, free and 100% confidential. You have nothing to lose- except for your debt!
(This article is intended as a discussion of legal topics that are often confusing to many laypeople; it is not, and should not be relied on, as legal advice. Attorney Jesse White is licensed to practice solely in Pennsylvania and any information discussed relates solely to Pennsylvania law. The hiring of a lawyer is an important decision that should only be made after careful consideration. If you feel you need to hire an attorney, contact The Law Office of Jesse White at 724-743-4444 or visit www.jessewhitelaw.com for free written information about areas of practice and experience.)