Chapter 7 vs. Chapter 13. Which to choose

On Behalf of | Jan 13, 2023 | Bankruptcy

Filing for personal bankruptcy has two options – Chapter 7 or Chapter 13. Understanding the differences can help you to make the best choice.

Here are some things to consider:

Only Chapter 7 can wipe your debts

This is why many people instantly assume that Chapter 7 is the best choice for them. The prospect of a court making your debts disappear is tempting. Note, however, that some debts may not qualify.

Chapter 13, by contrast, involves you rescheduling your debts in agreement with the court and creditors. In other words, you still have to pay them, or at least most of them, as creditors may agree to reduce the total repayment amount.

Wiping your debts comes at a cost

Sometimes the cost of wiping your remaining debts is losing things you worked so hard to get. If, for example, you have paid a significant part of your mortgage or car loan, you need to be sure it makes sense to lose the house or car. You’ll need help to understand what, if any, entitlement you have to keep them and if it would be better to opt for rescheduling payments so you can.

You might only be eligible for Chapter 13

Before filing for Chapter 7, you must pass a means test. If you do not come in under the threshold, you either need to change things, so you do, or accept that Chapter 13 is your only option.

Many people fail to keep up with Chapter 13 rescheduling

Chapter 13 has a much higher failure rate than Chapter 7. It’s important to be realistic about your chances of completing it.

The sooner you get started, the sooner you can rebuild your life and credit score. Seek legal help to understand more about your bankruptcy options.