Which Bankruptcy Protection Is Best for Me: Chapter 7 or Chapter 13?

After determining if you qualify to file for bankruptcy, you next need to determine which chapter is best for you. Let’s examine the pros and cons of each chapter.

Chapter 7

Chapter 7 will allow you to discharge most of your debts, except for a few limited items such as student loan debt, back child support and alimony payments, and tax debts. Chapter 7 allows filers to get a “fresh start,” but it does come with potential repercussions. Specifically, you may have to forfeit some of your property.

Chapter 7 Pros

• Relatively fast – the entire process typically takes around 70-100 days, depending on your situation.
• Discharge most debts.
• Less expensive than Chapter 13.

Chapter 7 Cons

• You may lose some property.
• Depending on how much personal property and income you have, creditors may still be able to garnish your wages. However, if you don’t own much other than a standard car and basic household items, and your income situation isn’t likely to change in the short run, then this is unlikely.
• Your credit is most likely to be damaged, but you’ll also be on a better path toward rebuilding your credit. A Chapter 7 bankruptcy will stay on your credit report for 10 years, but this does not necessarily mean that you won’t be able to qualify for credit cards or loans.
• If someone has co-signed for a loan with you, and you file for Chapter 7 bankruptcy, then that person will still be on the hook for the full unpaid portion of the debt.

What Property Will I Have to Give Up?

This depends largely on the type of property that you have. In California, certain types of property carry exemptions. Typically, the following types of property will be exempt, up to a certain dollar amount:

• Cars
• Furniture and reasonably needed household goods
• Reasonable clothing
• Appliances
• Life insurance
• Jewelry
• A portion of your home equity
• Trade tools
• Pensions, welfare payments, Social Security, unemployment compensation

Chapter 13

How is Chapter 13 different from Chapter 7? The largest difference is that in Chapter 13, you’ll be required to make monthly payments to a bankruptcy trustee as a repayment plan.

Chapter 13 Pros

• Typically, you’ll be able to lower both the interest rate and loan balance of your vehicle.
• Catch up on mortgage payments – keep your home.
• Eliminate a second mortgage or home equity line of credit.
• Keep non-exempt property.

Chapter 13 Cons

• More expensive and much more complicated.
• Takes longer.
• You’ll have to adhere to a strict budget for 3 to 5 years as part of the repayment plan.

Bankruptcy filing in Northern California can help relieve the burden of debt, but you need an experienced guide to make sure you get the protection that’s right for you. Contact the licensed attorneys at Wells, Call, Clark, Bennett & Clawson to schedule a consultation.

Is Chapter 7 or Chapter 13 Better for Me?

This question is difficult to answer without fully analyzing your income, assets, and debts, but if you have a lot of unsecured debt, then Chapter 7 is probably right for you. If you have a mortgage that you’d like to catch up on, then Chapter 13 might be right for you. But if you are already $50,000 behind and are struggling to pay your mortgage right now, then Chapter 13 probably isn’t a good idea. The best way to determine which chapter is best for you is by speaking with a licensed attorney about your unique situation. After discussing your income and debts, you’ll have a better idea of which path is best for you.

If you’d like to speak with an attorney at our firm, please contact us online or fill out the form below so that you can speak directly with a Northern California attorney regarding your situation. Our goal is to answer your questions and provide our clients with a smooth, painless filing process.