Chapter 7 or Chapter 13: The Pros and Cons of Filing BankruptcyTrying to figure a way out of debt and have peace of mind when it comes to your finances can be a very exhausting task to handle.  Making the decision to file for bankruptcy can also be a difficult one to make, to help with that decision it is usually a good idea to compare the advantages and disadvantages of bankruptcy.  Below we compare the two most common bankruptcies that people normally file, Chapter 7 and Chapter 13, and their pros and cons.

Chapter 7 Bankruptcy Pros

  • There is no limit to the amount of debt that can be discharged
  • Any balances that may be left over after the nonexempt assets are liquidated are discharged and you no longer have to worry about them.
  • Any income or assets you gain after the date on which you filed for bankruptcy belong to you, they are out of the reach of the creditors and the court.
  • A Chapter 7 bankruptcy generally does not take long to complete, they are usually over between three (3) to six (6) months, which means that you are free from your debt much quicker.
  • There is not a minimum amount of debt that is required before you are eligible to file.
  • Your credit score can start improving sooner, because Chapter 7 cases are generally concluded and closed much faster than other forms of bankruptcy.
  • You do not have to make regular monthly payments to the court in a Chapter 7 bankruptcy case, unlike the monthly plan payment required in a Chapter 13 case.
  • Chapter 7 cases generally cost less overall than Chapter 13 bankruptcy cases.

In our experience, Chapter 7 cases are the most desired kind of case to file by most people.  However, there are instances where a Chapter 7 is not an option or meets the filer’s needs.  Instances where a Chapter 7 is not a possible or preferable include:

  • the filer(s) have too much equity in their home, and will lose it if they file a Chapter 7 bankruptcy.
  • the filer(s) have too much in asset value that cannot be exempted, and they will lose significant assets if they file a a Chapter 7 bankruptcy.
  • the filer(s) make too much income to file a Chapter 7 bankruptcy.
  • the filer(s) received a bankruptcy discharge in a previous case less than eight (8) years ago.
  • the filer(s) need to discharge certain debts that cannot be discharged in a Chapter 7, but can be discharged in a Chapter 13.

Chapter 7 Bankruptcy Cons

  • Any property that is considered to be non-exempt, which is typically anything but your home and 1 car, are taken by the trustee and liquidated to pay your debts.
  • There may be some debts that cannot be discharged, such as mortgage liens.
  • If there is the threat of foreclosure on your house, the lender’s efforts can only be temporarily stalled by filing.
  • If one of your debts required a co-signer, that person may receive the debt unless they also file for bankruptcy.
  • a Chapter 7 bankruptcy discharge can only be obtained once every eight (8) years.
  • in some limited instances, a Chapter 7 bankruptcy can have a more negative impact on your credit than a Chapter 13 case.
  • there are certain debts that a Chapter 7 cannot discharge, but can be discharged in a Chapter 13 case.
  • the attorney’s fees for a Chapter 13 case can be included in the monthly plan payments to the court.

Chapter 13 Bankruptcy Pros

  • It is possible to keep all or many of your assets that would not be protected in a Chapter 7 case, if you can afford the Chapter 13 plan payments.
  • The time-frame in which you have to repay your debts is extended (usually 3 to 5 years).
  • The interest rates on debts can be eliminated (usually unsecured debts), or significantly reduced (automobile loans).
  • Any debts that are not discharged in during a Chapter 7 can usually be reduced by filing for a Chapter 13 bankruptcy by virtue of the plan payments.
  • If your debt required a co-signer, that co-signer is not going to be held liable to collector’s attempts as long as the repayment plan is to be paid in full.
  • The lender of your home loan cannot foreclose on your home, so long as you meet all the requirements for the Chapter 13 and your case is good standing.
  • The lender of your automobile loan cannot repossess your car, so long as you meet all the requirements for the Chapter 13 and your case is good standing.
  • Generally, there is no limit on the amount of time you can file a Chapter 13 bankruptcy after receiving a prior discharge.
  • Certain kinds of debts can be discharged in a Chapter 13 bankruptcy case that cannot be discharged in a Chapter 7 case.

Chapter 13 Bankruptcy Cons

  • You have to pay all or a portion of your debts out of your own income, starting with the date of filing for bankruptcy for a period of three (3) to five (5) years.
  • Some debts may still be left over after the bankruptcy, you will still be held liable for them.
  • Filing for a Chapter 13 bankruptcy can be more costly due to it being a bit more complex.
  • The repayment plan can go on for three (3) to five (5) years, having an impact on your voluntary use of your income.
  • As of April 1, 2019, As of April 1, 2019, if your secured debts (mortgages, secured judgments and liens) add up to more than $1,257,850, or if your unsecured debts add up to more than $419,275, a Chapter 13 will not be available for you to file. These amounts are routinely adjusted every three (3) years.
  • Generally a debtor(s) can file a Chapter 13 case, let it get discharged, and generally file again later if needed to get the protection of a bankruptcy stay.  However, if this is done too often, the court can order the filer(s) to not file another case again for a certain period of time.  In addition, a recent third (3rd) filing following a dismissal of a previous case does not offer the protecting of the bankruptcy stay.

Retaining an Experienced Georgia Bankruptcy Attorney

This article lays out a general summary of a Chapter 7 versus a Chapter 13 bankruptcy.  When filing a case, you should explore this topic in detail with an experienced bankruptcy attorney that has filed hundreds of case in your jurisdiction.  If you would like to speak with an experienced bankruptcy attorney, call us at 470-947-2471.  We offer free consultations for qualifying cases.  Contact >