How to Choose between Chapter 7 and Chapter 13 Bankruptcies

Say you decide that filing bankruptcy really is the only debt relief option that will work for you. You have exhausted all other options and really just need a fresh start in the credit world. The two main types of bankruptcy filing for consumers are chapter 7 and chapter 13, but perhaps you do not know which option is best for your unique financial situation.

Oftentimes, consumers do not have a choice between filing chapter 7 or chapter 13, because they meet the eligibility requirements for only one type of filing. Sometimes, however, individuals meet the eligibility criteria for both chapter 7 and chapter 13 and have the opportunity to decide on their best course of action. If you plan to file bankruptcy and meet the following criteria, then you may be able to choose between filing chapter 7 and chapter 13:

• Your income is not above the median income in your state for a family of your size.

• Still, you have enough income that you may be able to repay some debts within the next few years.

• Your secured debts do not amount to more than $1,010, 650, and your unsecured debts do not amount to more than $336,900.

• You are up-to-date on your tax returns.

• You have not filed chapter 7 bankruptcy within the last eight years, and you have not filed chapter 13 bankruptcy within the last six years.

• You have not had a bankruptcy filing dismissed within the last 180 days.

• You are filing on behalf of yourself, not on behalf of a business.

If you are eligible to file either chapter 7or chapter 13, how can you decide upon the best option? Is it better to have some your assets liquidated and the majority of your debt forgiven under a chapter 7 (liquidation bankruptcy), or is it better to develop a plan to pay off some, or most, of your debts in a reasonable manner under a chapter 13 (reorganization bankruptcy)?


Choosing Chapter 7

Given the choice, most people will cling to chapter 7 filing since the result largely is a forgiveness of debt and a clean slate (though coupled with very poor credit). Beyond this, chapter 7 might be your better option if:

• It simply is impossible for you to pay off any of your debts, period.

• You have some property (not including a house or car) that could be liquidated to pay off a debt or two.

• Your debt is not made up heavily of obligatory debts, such as student loans, taxes, spousal support, or child support, that cannot be discharged.

• A fast and relatively simple process is important to you.

Choosing Chapter 13

While it may be the less popular option, there are some situations in chapter 13 will be the better option. This might be the case if:

• You simply would not feel right about failing to repay your debts.

• A good portion of your debt is considered obligatory and therefore cannot be discharged, such as student loans, taxes, spousal support, or child support.

• You have missed payments on a mortgage or auto loan (or some other costly property),and want to make up for them so that you want to keep the house/car.

• You have other property that you wish you keep that likely would be liquidated and sold through chapter 7 bankruptcy.

• There is another debtor besides yourself attached to your debts

When it comes to all matters financial, including bankruptcy, there is no right or wrong choice for consumers across the board. If you are faced with bankruptcy and are in the rare position to choose whether chapter 7 or chapter 13 bankruptcy is best for you, then think carefully and realistically about your finances.. Chapter 7 bankruptcy wins the popularity contest, but chapter 13 bankruptcy certainly is the better option for some consumers.