June 20, 2017

Should I file Chapter 7 or Chapter 13?

Which Bankruptcy option is best for me?

Ultimately the debtor must decide for him/herself whether filing bankruptcy is the proper action to take, and if so, under which Chapter they should file.

Factors to consider are as follows:

  1. If the debtor does not make enough money to pay their current living expenses, then a Chapter 13 plan would not be feasible.
  2. Chapter 7 has the advantage of discharging all debts within 90 days enabling the debtor to begin a “fresh start” immediately.  A Chapter 13 plan requires the debtor to   make payments for 3 to 5 years.
  3. However, there are three reasons a debtor may be required to file chapter 13.  These reasons are; 1) the debtor has a particular asset(s) whose value is above the allowable exemptions.  If the debtor filed Chapter 7 the Chapter 7 trustee would sell the asset(s), but the debtor wants or needs to keep the asset.  In this case filing Chapter 13 save the asset(s); 2) the debtor does not pass the means test and his only option for relief is to file Chapter 13; or 3) the debtor is in default on a secured loan and needs to file Chapter 13 to stop a foreclosure or repossession and cure the default.
  4. Initial fees are generally higher to file Chapter 7, but total fees over the life of a Chapter 13 plan are generally higher than the total fees incurred to file Chapter 7.