When Chapter 7 Bankruptcy May Be Better than Chapter 13

Posted on December 8, 2011 at 2:25pm by

Not all bankruptcies are the same. There are significant differences between a Chapter 7 bankruptcy and a Chapter 13 bankruptcy. Depending on your financial situation, you may benefit more from a Chapter 7 filing. As always, consult an experienced Kansas City bankruptcy lawyer about which option suits your specific circumstances.

The Advantages of a Chapter 7 Bankruptcy

Not all debtors are eligible for a Chapter 7 bankruptcy. If your income is sufficient to fund a Chapter 13 repayment plan, you may not qualify for a Chapter 7.

Those who do qualify for a Chapter 7 bankruptcy filing find that it is relatively quick, easy to file and effective, and it does not require a lengthy repayment plan. It only takes four to six months for the typical Chapter 7 case to go from being filed to discharged and close. The debtor emerges debt-free, except for certain nondischargeable debts, such as child support, alimony, income taxes (although taxes over three years old may be dischargeable) and student loans. Secured debts, such as mortgage loans and car notes, are dischargeable if you give up the property underlying the loan. If you want to keep the collateral, you must repay the debt. For example, if you no longer want your house, you can walk away from it and owe nothing, but if you want to keep it, you must repay the mortgage and property taxes despite the bankruptcy.

Most Chapter 7 debtors get to keep their property through the various bankruptcy exemptions available to them. All states allow some household goods and personal possessions to be protected. If you have little of value to a third party, you will likely get to keep all of it.

The big appeal of a Chapter 7 is that you do not have to repay any portion of your unsecured debt, such as credit cards, personal loans, medical bills and most utilities. A Chapter 13 bankruptcy requires a three-to-five year repayment plan. You must complete the entire repayment plan in order to receive a discharge.

Most people who file a Chapter 13 bankruptcy do not complete their repayment plans. As a result, their legal obligation to repay their debts remains, and they are back to square one. If your Chapter 13 case begins to fail, your bankruptcy attorney may be able to help you convert your case from a Chapter 13 case to a Chapter 7 case.

Despite the perceived drawbacks of a Chapter 13, there are instances when it may be a better fit for your situation. Contact an experienced Kansas City Bankruptcy attorney for a free consultation about whether a Chapter 7 or Chapter 13 bankruptcy is best for you.