Legal Guide

Pros And Cons Of Choosing Chapter 7 Over Chapter 13 Bankruptcy

If you're struggling with overwhelming debt and considering filing for bankruptcy, it's important to understand the differences between Chapter 7 and Chapter 13 bankruptcy. Both types of bankruptcies offer relief from debt but have different eligibility requirements, repayment plans, and long-term impacts on credit scores. In this article, we'll explore the pros and cons of choosing Chapter 7 over Chapter 13 bankruptcy.

Chapter 7 Bankruptcy: The Basics

Chapter 7 bankruptcy is also known as "liquidation" or "straight bankruptcy." It's designed for individuals who have limited income and assets to pay off outstanding debts. Under a successful Chapter 7 filing, some or all unsecured debts (such as credit card balances) may be discharged entirely.

Chapter 7 bankruptcy cases typically take around three-to-six months to complete. During this time, a trustee appointed by the court will review your financial situation, liquidate any non-exempt assets (such as second homes or expensive cars), and distribute proceeds among creditors.

Pros Of Choosing Chapter 7 Bankruptcy

Quick Discharge Of Debts: One of the most significant advantages of choosing Chapter 7 bankruptcy is that it offers a relatively quick resolution to your debt problems. Once your case is approved by the court, eligible debts are discharged in just a few months.

No Repayment Plan Required: Unlike in a Chapter 13 filing where individuals must create a court-approved repayment plan lasting several years - there’s no repayment plan required under chapter seven filings!

No Limit On Amount Of Debt Discharged: There's no limit on how much debt can be discharged under a successful Chapter 7 filing; however, not all types of debt qualify for discharge such as tax obligations/student loans/child support payments!

Cons Of Choosing Chapter 7 Bankruptcy

Loss Of Property: One significant disadvantage of choosing Chapter 7 bankruptcy is that you may lose valuable property/assets that aren’t exempt from being liquidated by the trustee! This could include second homes/cars/valuable jewelry/etc., which can cause significant emotional distress!

Credit Score Impact: While it’s true that discharging debts through chapter seven filings offers near-immediate relief from financial burdens - this approach significantly damages credit scores! Individuals who file for chapter seven will see their score drop significantly (typically up to two hundred points) making future borrowing difficult/expensive!

Eligibility Requirements : Not everyone qualifies for chapter seven filings! To be eligible you must pass a test indicating low enough income or assets to cover outstanding debts! If fail means test then the only option may be chapter thirteen filings!

Chapter 13 Bankruptcy: The Basics

Chapter thirteen bankruptcies are also known as "reorganization" bankruptcies because they involve restructuring existing debt into manageable payment plans lasting three-to-five years! This option is ideal for those who earn too much money to qualify for chapter seven filings/own assets they wish to retain but still struggle with high levels of indebtedness!

Under chapter thirteen filings individuals create detailed repayment plans outlining how they’ll repay outstanding debts over a set period typically three-to-five years/monthly payments made directly by a trustee appointed by court/distributed among creditors based on priority levels set forth in the plan!

Pros Of Choosing Chapter Thirteen Bankruptcy

Asset Retention: One major advantage of choosing chapter thirteen bankruptcies over chapter seven is asset retention! Individuals are allowed to keep assets such as homes/cars/jewelry/etc., while still receiving relief from overwhelming debt burdens!

Improved Credit Score Potential: While it's true that credit scores do take a hit when filing for any type of bankruptcy - those who successfully complete their chapter thirteen reorganization plans often see improvement in their credit score compared to those who filed under chapter seven.

Flexible Repayment Plans: Another benefit offered under chapter thirteen proceedings is flexibility in repayment plans – which allow debtors to tailor monthly payments according to their specific circumstances/budgets/etc.! This helps ensure successful completion/reduces chances defaulting on payments/being forced back into another cycle of indebtedness due inability to keep up with payment schedule mandated by court!

Cons Of Choosing Thirteen Bankruptcy

Longer Time Frame For Debt Resolution : One disadvantage associated with pursuing reorganization bankruptcies via chapter thirteen proceedings rather than straight liquidation via chapter seven is the longer time frame required to resolve outstanding debts! Typically it takes at least three years to make monthly payments per agreed upon schedule before receiving discharge order from the court. A local bankruptcy attorney in Prattville, or wherever you live, can help you decide which type of bankruptcy is best for you.

Difficulties With Payment Plan Adherence : Although flexible repayment terms are one advantage offered under reorganization bankruptcies via chapter thirteen proceedings - keeping up with these payments isn't always easy! Monthly installments frequently large/hard fit into tight budgets/exacerbating already challenging financial situations!

Potentially Higher Cost Overall : Finally - another potential disadvantage choose reorganization bankruptcies via chapter thirteen proceedings rather than straight liquidation via chapter seven overall increased cost associated with interest rates

More to Read: