Chapter 7 vs Chapter 13: Which is Better?
My clients often asked me which chapter, 7 or 13, is the better one to file? The answer is neither is better, they are just different. The goal of any bankruptcy is to obtain a discharge, a court order that releases you from your indebtedness. Chapter 13 and Chapter 7 are two different ways for a consumer to achieve that goal. Each one is designed to address a different set of circumstances.
Chapter 7 discharges you from all debt releasing you from ever having to pay them back (with some exceptions). Chapter 7 bankruptcy is designed for people that have fewer assets and less disposable income. Chapter 7 is sometimes called “income protection,” because by surrendering to the bankruptcy court your nonexempt assets (assets over and above those things that you may keep by law when you file bankruptcy) you are protecting all of your future earnings. Should your future earnings increase, even if you became a millionaire, you can keep what you earn, without the worry that the creditors from your past can see collection of unpaid debts. Many famous people have filed Chapter 7 including Walt Disney, Donald Trump and Willie Nelson
There really isn't a better bankruptcy
By contrast, Chapter 13 is really designed for consumers who have disposable income, or who have assets that they want to keep, or who need the protection of a chapter 13 to either prevent the loss of assets by foreclosure or repossession, or pay debts that cannot be discharged in a chapter 7. For example, this can include a consumer who has fallen into arrears on their home mortgage or automobile payment and who is trying to keep those assets. It can also include a consumer who has substantial assets in excess of their exemptions (or what they are allowed to keep on filing bankruptcy). As a general rule Chapter 13 allows you to keep all of your property. Chapter 13 also allows you to keep property that your creditors are attempting to foreclose upon or repossess.
Instead of wiping out your debt chapter 13 allows you to make your creditors comply with a debt repayment plan approved by the bankruptcy judge. This debt repayment plan can force your creditors to compromise the amounts you have to pay back. Sometimes, the payback amount can be very little. But, regardless of how much you pay back, much or little, at the end of your bill repayment plan you receive a discharge for any unpaid balance including interest.
Another reason to consider a Chapter 13 is that it can allow you to keep things that your creditors are either trying to foreclose upon or repossess. For example, filing a chapter 13 will stop the foreclosure sale and force your lender to accept your regular monthly mortgage payments, as well as give you up to five years to cure your missed house payments. Another important example is that chapter 13 can prevent the repossession of your automobile and force the lender, often, to reduce the interest payment and monthly payment you must make to keep the vehicle.
There are other reasons to consider filing for chapter 13. For example chapter 13 can provide you greater flexibility in dealing with taxes and other debts that might not otherwise be discharged in a chapter 7. Regardless, the best way to decide which chapter is best for you is to work with an experienced bankruptcy attorney. Here at Marshall D Cohen Company LLC, located in Columbus Ohio, we have dedicated our practice solely to the filing of bankruptcy.
We have both the experience and knowledge of bankruptcy to help you make the decisions that are best for you.