Chapter 7 Bankruptcy Versus Chapter 13 Bankruptcy: Pros and Cons

Chapter 7 Bankruptcy Versus Chapter 13 Bankruptcy

There are several reasons to pick between a Chapter 7 and a Chapter 13 Bankruptcy. While I do not intend to list all of the possible benefits each may offer, I will discuss the primary issues. First, there are statutory limitations that may simply determine which bankruptcy you have to choose. Chapter 7’s have an income limit: if you are over it, then you must file under Chapter 13. Second, there are debt limits for Chapter 13 filings which bar you from that Chapter if your debts are too great. Third, there are time limits as to when you can file bankruptcy again after a prior one. Last, you must have some regular income to file under Chapter 13. All of these matters are discussed below and all may serve to make the filing decision for you.

Pros and Cons of Chapter 7 Versus Chapter 13 Bankruptcy

There are pros and cons to filing under Chapter 7 or Chapter 13, assuming you are eligible for both. Chapter 7 offers advantages for low income debtors with no assets to distribute to creditors after the exemptions are applied. Thus, if all of your property is exempt and you fall under the means limit, Chapter 7 discharges all of your unsecured debt and you are not forced into a three to five year plan as you are in a Chapter 13.

Chapter 13 Bankruptcy:  Advantages

One of the main reasons for filing Chapter 13 is that there is non-exempt property to protect. You may opt to keep property that has non-exempt equity in it, with the one major proviso is that you have to pay unsecured creditors the equivalent amount. A chapter 13 filing can also protect property that is going to be repossessed. The automatic stay prevents repossession. A reaffirmation of the agreement allows the terms to be renegotiated. And the plan allows you to cure your arrears over its life. The automatic stay in a Chapter 13 filing also extends to co-debtors, and the debts that may be discharged are slightly broader. You can pay your attorney fees by installment in a Chapter 13 plan. Finally, a Chapter 13 plan can be dismissed or converted to a Chapter 7 as a matter of right.

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