Should you go for Bankruptcy Chapter 7 or Chapter 13?

Chapter 7 or Chapter 13? This is one of the most common questions arising in the mind of people contemplating the filing of bankruptcy.

Are you one among those filing for bankruptcy and have no inkling about the way forward, especially about the sort of bankruptcy that needs to be filed? As a debtor, you have two options available for you. While Chapter 7 will result in a discharge of all existing debts, Chapter 13 will help in reorganizing your debts and chalking the way forward. Given below are some pertinent issues that will help you estimate which path to take, Chapter 7 or 13?

Bankruptcy Chapter 7

Factors that Require Consideration before Filing for Bankruptcy


Your income happens to be the main determinant with regards to whether you should be filing for Chapter 7 bankruptcy or not. As a debtor, your average household income on a monthly basis, especially for the last six months, must be at or below the median income of similar-sized households in the state of your residence. If your income falls in the required bracket then you would automatically qualify for the filing of Chapter 7. In case, your income level figures above the level as defined above, then although you may still be qualified for Chapter 7, you will have to pass The Means Test. This test accounts for different monthly expenses that are deemed essential by the court, such as car payments, taxes, mortgage loans, insurance, child care, etc.

Assets: Effect on Bankruptcy

While deciding whether you want to go for Chapter 7 or 13, you have to take your assets into consideration. In effect, your assets would tell which chapter to take. For instance, while a specific debtor may succeed in qualifying for Chapter 7, he may be the owner of certain assets that fail to be protected from seizure by the bankruptcy estate. The assets that are not exempted in entirety have to either be paid for as per their pre-defined value, or surrendered to bankruptcy estates.

Foreclosure and Bankruptcy

Foreclosure is another important reason why debtors file for bankruptcy under Chapter 7 or Chapter 13. In case you are looking towards surrendering your home and getting rid of your debts then it is a good idea to file for bankruptcy under Chapter 7.However, if you desire to keep your property despite facing foreclosure then Chapter 13 happens to be an effective way. This is because it contains special programs that are specifically designed for taking care of a lengthy Chapter 13 case. Additionally, any money that’s owing to the mortgage company in the form of arrears is capable of being paid back to it in the course of the plan. Overall, Chapter 13 and its long duration make for a better choice for most debtors.

Vehicle Repossession

It is important to file for bankruptcy beforehand if your vehicle is subject to the terms of being repossessed. The chapter under which you will be filing for bankruptcy would be dependent on how and when you are capable of catching up with the balance that is unpaid.

Remember, there are certain things that are possible in chapter 7 that are not possible in chapter 13, and vice versa. Your attorney is the best person to guide you with respect to rare situations, reductions in the interest owed, cram downs, the principal balance, etc.

Are you ready to hire the services of one such lawyer?