Chapter 7 takes about 4 months, while Chapter 13 takes 3 to 5 years, and likely costs more. But that doesn’t begin to answer which is better.
Chapter 7 and Chapter 13
Chapter 7 “straight bankruptcy” is usually, but not always, for simpler situations. It’s often the right choice if your income is relatively low, your assets are modest, and your debts are straightforward. You keep all of your assets, all or most of your debts are discharged (legally written off), and if you want you keep paying on your vehicle and/or your mortgage or rent.
Chapter 13 “adjustment of debts” is usually, but not always, better for somewhat more complicated situations. Your income may be too high to qualify for Chapter 7. You may have an asset or two that is not “exempt”—not protected. Or you may have debts much better handled under Chapter 13. Do you owe income taxes or student loans or a second mortgage? Are you behind on a vehicle loan, home mortgage, property tax, or child or spousal support? These and certain other kinds of debts are often handled much better in a Chapter 13 case.
Overall, these two options each have advantages and disadvantages that need to be carefully matched to you and your goals. Chapter 7 may be able to solve immediate problems and do so quickly. Chapter 13 is more expensive but that can be far outweighed by the money you save over using Chapter 7. In some situations the unique tools of Chapter 13 can save a person many thousands of dollars. Chapter 13 takes so much longer but that length can itself be an advantage. When you need or want to pay a special debt, you can stretch payments out to lower their monthly amount. So it just depends on your personal situation.
Be Flexible When You Meet with your Lawyer
You’re reading this blog post, so we’re glad that you’re working on getting informed about your options. But it’s also important to have an open mind when you go to see your bankruptcy lawyer for legal advice. If you do inform yourself in advance you may tentatively decide which option is best for you. Or you may just not know. It is easy to not be aware of a crucial advantage or disadvantage that could be decisive. So don’t be too convinced about going with one option when the other may actually be better.
Sometime Easy, Sometimes Difficult Choice
The reality is that sometimes it’s pretty clear which option is better for you. Sometimes you only qualify for one of the two. Or your circumstances can push your decision strongly towards either Chapter 7 or 13. In these situations, you may have an easy choice.
But often you qualify for both. It’s not unusual that each gives you some advantages and disadvantages that the other doesn’t. Especially in these situations it’s crucial to know all these advantages and disadvantages in order to make the best choice. Then it comes down to a deeply personal decision based on what goals and benefits are most important to you.
To Help You Be Informed
It IS good to be as informed as you much as your time and energy allows. This choice between Chapter 7 and Chapter 13 is very important. So during the next few weeks we’ll look at the differences between them.