Is Chapter 7 or Chapter 13 better?
If you’ve been reading this blog for awhile, you can probably guess the answer to this question - “it depends.”
To say that either chapter is better than the other would be like saying oranges are better than apples. Like apples and oranges, Chapter 7 and Chapter 13 are different. One chapter may be better for your situation but there is no “better” bankruptcy. Let’s explore the differences and see what each chapter can or can’t do.
Pros & cons of Chapter 7
Chapter 7 pros:
- You can be in and out of Chapter 7 in about 3-4 months.
- Most debts can be discharged (forgiven). See the list of non-dischargable debts.
- There’s no debt limit.
Chapter 7 cons:
- You can’t file for Chapter 7 if your income is too high (unless your debts are non-consumer debts).
- If you have too many assets, you may lose some.
- There’s no opportunity to make-up missed payments on property you want to retain, such as your home or car.
- Once you file the Chapter 7, there’s no right to dismiss the case. It’s like walking through a door and locking it behind you.
Pros & cons of Chapter 13
Chapter 13 pros:
- Offers the possibility of lien stripping second mortgages from underwater homes.
- Can make-up missed mortgage payments and tax payments during Chapter 13 repayment period.
- Can make-up missed car payments and avoid repossession.
- Can get up to 5 years to repay non-dischargeable tax debt.
- Can keep student loans from taking collection efforts against you for 5 years.
- Can keep unexempt assets, meaning you can keep all of your assets.
Chapter 13 cons:
- Requires a 3 or 5 year commitment (though it can be a pro to live within a financially structured environment).
- You must get permission from the Trustee and/or the Court to get new loans for car, home, etc.
- You must earn enough income to be able to pay your living expenses and make your Chapter 13 payments.
- Debt limit may disqualify some people from filing Chapter 13.
As you can see, there are many differences between Chapter 7 and Chapter 13 bankruptcy. And this list is just a short example as there are many other pros and cons to each Chapter. It’s important to meet with a competent bankruptcy to discuss your situation and determine which chapter is right for you.
If you’re wondering if Chapter 7 or Chapter 13 is better for your situation, call us at (415) 963-4004 or schedule online.