What Are The Benefits Of Chapter Seven Bankruptcy Over Chapter 13 Bankruptcy?
Many people ask if it is better for them to file for Chapter 7 or Chapter 13 bankruptcy. Before a decision is made, it is important to note that in many cases Chapter 7 bankruptcy does have advantages over Chapter 13 bankruptcy. Below are some of the reasons that you should consider filing for Chapter 7 bankruptcy:
Better Way To Start Over
One of the significant differences between Chapter 7 and Chapter 13 is that Chapter 13 bankruptcy requires a repayment plan that can last between three (3) and five (5) years. Chapter 7 bankruptcy normally is open for Four (4) to six (6) months and in most situations does not require any payment to creditors. You will not only be able to reestablish your credit quickly, but you will also be able to start changing your financial habits. Even though filing for Chapter 7 bankruptcy will lower your credit score, many people find that it improves after the first year so long as they are responsible with their newly found financial freedom.
Chapter 7 Eligibility
In order to be eligible for Chapter 7 bankruptcy, an attorney will review your family income to ensure it meets certain eligibility standards that must be met in order to file a Chapter 7 bankruptcy. Eligibility for Chapter 7 is determined by reviewing, among other things, historical income from the past six (6) months, family size, monthly family expenses, and whether after these factors are reviewed if there is an ability to repay a portion of your debt. Determining eligibility for Chapter 7 can be complex and is best left to a professional who is familiar with current standards and options that can be pursued to ensure the system is working in your favor.
If you want to quickly get through bankruptcy, then Chapter 7 is definitely your best option. You can complete the process within four to six months. However, if you file for Chapter 13 bankruptcy, then it can take you anywhere from three to five years. The purpose of Chapter 7 bankruptcy is to help you get through the process and obtain a “clean slate” and financial freedom in an expedient manner.
No Monthly Payment
If you file for Chapter 13 bankruptcy, then you will be required to make monthly payments which will be used to pay a portion of your debts. In a Chapter 7 case, outside of very limited circumstances that an attorney can normally foresee, there is no repayment to your creditors. You will be able to wipe away almost all types of unsecured debt with Chapter 7 Bankruptcy.
Important Note- Not everything goes away in Chapter 7
In Chapter 7, not all unsecured debt is wiped clear. Certain debts such as tax liability to the IRS or State, student loans, alimony/child support, and certain obligations in divorce/dissolution decrees will not be discharged in Chapter 7. If you have these debts, an attorney can advise you the best way to proceed and Chapter 13 may be the better option to address certain debts that are not dischargeable in Chapter 7.