Should you file a Chapter 7 Or Chapter 13 Bankruptcy?

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The choice of the bankruptcy protection determines the relief you will get. So choose wisely.

While some of the clients know that what bankruptcy chapter they needs to file for, most of them look for the right advice whether to file for the Chapter 13 or Chapter 7 bankruptcy.

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In most the cases, generally the preference is given to the Chapter 7 Bankruptcy. This is because it is considered as the least expensive, simplest and fastest chapter of the code of the bankruptcy. Unless there is any significant reason for filing under any different chapter, we normally recommend to the client that they should file for the Chapter 7 Bankruptcy.

Sometimes, however, the Chapter 13 bankruptcy is considered as the better choice.

 

Why You Should Consider Chapter 7 Bankruptcy?

Depending on the types of debt the applicant have, the chapter 7 bankruptcy can be considered as the right solution for the applicant.

Usually, there are three kinds of the debts: secured, general unsecured, and priority.

Priority debt includes the domestic support obligations and the recent tax debt which involves child support and alimony. The priority debt is not dischargeable in the case of the chapter 7 bankruptcy. Unless it’s paid full in the case, the applicant still owes it after he receives the discharge.

Most of the secured debts, which is the type of  debt where the applicant pledge something as the collateral, such as the car loans and mortgages, are changed from the recourse debt to the non-recourse debt. What does this legalese suggest? It defines that if the lender can sue the applicant for the shortfall or deficiency after the repossession or foreclosure and if the sale of the collateral will not bring in enough to pay for the debts in full, then the bankruptcy discharge can stop them from going after the bankruptcy applicant. Then all they can go after is only the collateral, and if it will not bring in enough to pay for the debt in full. This suggests that the bankruptcy applicant can walk away from the car or house if he wants to do so. If the applicant does not want to, then he can just keep the payment current and then it all will be fine.

 

On the entry of the discharge, most of the general unsecured debts including medical debts, credit cards, old taxes, personal loans, foreclosure, tax penalties, repossession deficiencies, unpaid HOA, unpaid rent and condo fees, unpaid bills and utility, etc. but not the student loans are wiped out. The bankruptcy applicant needs not to pay all these debts at all.

A typical Chapter 7 lasts about 4 months from filing to discharge.

Why You Should Consider The Chapter 13 Bankruptcy?

  1. The applicant is not eligible for the chapter 7 bankruptcy. He has failed the means test, or has filed for the Chapter 7 case in which he received the discharge within the previous eight years.
  2. The applicant is behind his mortgage and need time to catch up properly. The chapter 13 gives the applicant up to five years to spread the payments out so as to bring the mortgage current, without any interest.