When is Chapter 13 Preferable to Chapter 7?

A basic internet search regarding Chapter 7 and Chapter 13 bankruptcy will reveal that one of the main differences between the two is that while Chapter 7 generally results in the discharge of debt, in Chapter 13, individuals will enter into a payment plan that lasts from three to five years. This leads many people to wonder why they would ever file for Chapter 13—after all, isn’t paying nothing and having your debt discharged clearly favorable to making three to five years of payments?

As is often the case with questions regarding the law, it’s not that simple. In many cases, people who own significant assets and make a regular income can more readily achieve their financial goals through Chapter 13. To understand why, it is helpful to consider the differences between the two.

Chapter 7—Liquidation Bankruptcy

In a Chapter 7 bankruptcy, all of a debtor’s non-exempt assets are liquidated and proceeds used to pay off creditors. While exemptions often allow debtors to keep a significant amount of their assets, depending on the circumstances, they may be required to part with their home, vehicle, jewelry, collections or other valuable items that they would rather keep.

Chapter 13 Allows Debtors to Keep Their Assets While Providing Protection from Creditors

Chapter 13 bankruptcy, on the other hand, allows a debtor to restructure his or her debts and pay them back over a period of three to five years. During this time, the debtor is protected from any collection activities—including repossession or foreclosure—so long as he or she stays current on payments to the bankruptcy trustee. In this way, Chapter 13 can help people who have fallen behind on their financial obligations keep their assets while obtaining the fresh financial start offered by the bankruptcy.

So, is Chapter 13 Right for You?

Because every case is different, it is impossible to advise anyone about what kind of bankruptcy they should file (if any). Here are some of the factors that will influence whether Chapter 13 is right for you:

  • Your total debt level
  • How much money you make
  • Your financial goals
  • The types of debt that you carry
  • Whether you have assets that you would like to keep

Because of these issues and the legal complications associated with filing for bankruptcy, it is best to discuss your situation with an attorney at length before taking any action that could affect your rights or financial future.

Call Berkowitz & Myer Today to Schedule a Free Case Evaluation with a St. Petersburg Chapter 13 Attorney

If you are having trouble meeting your financial obligations in spite of earning a regular income, Chapter 13 bankruptcy may be able to help. At Berkowitz & Myer, we offer a completely free, no-obligation consultation during which we will determine whether we believe that you could benefit from filing for bankruptcy. To schedule an appointment with one of our St. Petersburg bankruptcy lawyers, call our office today at (727) 344-0123 or send us an email through our online contact form.

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