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Why Would I Use Chapter 13 Bankruptcy Instead of Chapter 7?

Photo of calculator and billsChapter 7 bankruptcy is often a great solution for people struggling to cope with large amounts of debt. It’s a much shorter process that Chapter 13 bankruptcy, and doesn’t require you to create and stick to a repayment plan. However, depending on your situation, you may be ineligible to file Chapter 7 bankruptcy, or you may even benefit more from filing Chapter 13 bankruptcy instead of Chapter 7.

What If I Don’t Qualify for Chapter 7 Bankruptcy?

Some people aren’t allowed to file Chapter 7 bankruptcy if their income is too high and/or they have too much wealth in assets. If you are ineligible to file for Chapter 7 bankruptcy, Chapter 13 is probably your best option.

To determine whether or not you can file for Chapter 7, you have to take a bankruptcy means test. The test gauges your monthly income over the six months prior to filing bankruptcy, as well as your other disposable income to find out if you could feasibly handle a repayment plan.

What Is Chapter 13 Bankruptcy?

Chapter 13 bankruptcy often takes between three to five years to complete, and requires you to create a reasonable repayment plan so that you can pay back at least some of what you owe your creditors. After the three to five years, whatever debt is left could be completely discharged.

When Is Chapter 13 a Better Choice than Chapter 7?

In some situations, even if you qualify for Chapter 7 bankruptcy, it may be smarter to talk to a bankruptcy attorney about filing Chapter 13.

For example, choosing Chapter 13 instead of Chapter 7 may be better if you would be required to forfeit your car, home, or other valuable property in Chapter 7 bankruptcy. Other circumstances when you may be better off choosing Chapter 13 include:

  • If you have a cosigner on one or more of your loans. Cosigners are not granted protection from creditors after a Chapter 7 discharge.
  • If you have nondischargeable debts, such as student loans and most taxes. Chapter 13 bankruptcy can help you pay off those debts that would not be discharged.
  • If you have other property you are unwilling to give up. In Chapter 7 bankruptcy, a bankruptcy trustee will sell off any nonexempt property to repay some of your debts. You may choose to file Chapter 13 instead so that you can keep assets that may have been sold off otherwise.
  • You have a genuine desire to repay the debt. Chapter 13 will allow you to repay what you can.

Both Chapter 7 and Chapter 13 bankruptcy offer varying benefits. A bankruptcy attorney can tell you which option would better suit your individual needs.