Choosing Between the Chapter 7 and Chapter 13 Forms of Bankruptcy
There are three Bankruptcy Options that are available to individuals, but the vast majority of filers end up choosing either the one described under Chapter 7 of the United States Code or the alternative detailed in Chapter 13. Each of these forms of bankruptcy has its own distinct characteristics and advantages. Choosing between them tends to become fairly straightforward after conducting an analysis of the most relevant details.
Rarely a Need to be Confused About Which Type of Bankruptcy Makes the Most Sense
People with especially complicated financial situations will sometimes opt for Chapter 11 bankruptcy, but that is fairly rare. The vast majority of individuals will be better served by filing for either Chapter 7 or Chapter 13, provided an appropriate choice between them is made.
Fortunately, these two kinds of bankruptcy are different enough that it should normally be fairly clear which is the better option. While a Chapter 7 form of bankruptcy eliminates debt, for example, the Chapter 13 alternative has the debtor's obligations being reorganized by order of the court.
The other most important difference between the two styles of bankruptcy concerns the liquidation of the debtor's assets. Under Chapter 7, only a select few types of assets are shielded from being sold by the court to have the proceeds distributed to creditors. With chapter 13 bankruptcy, many more kinds of assets receive protection.
An Assessment of the Most Important Issues Tends to Make the Right Choice Clear
Deciding between Chapter 7 bankruptcy and the Chapter 13 alternative should not normally be especially difficult to do. In practice, simply being realistic and thoughtful about issues like the following should make the better choice fairly obvious.
Debts. Anyone who is considering filing for bankruptcy will normally have accumulated significant amounts of debt. Because Chapter 7 wipes the slate entirely clean, it will typically be the more appealing option for those whose debts are largest relative to their ability to repay them. While the total amount of debt load will normally be reduced by order of the court under Chapter 13, a debtor will still be expected to repay a significant portion of the original total.
Income. Debtors who make too much money relatively to local norms and the sum total of their debts will simply not qualify for relief under Chapter 7. On the other hand, a debtor who does not have a reliable source of income will normally not be eligible for Chapter 13 protection.
A straightforward assessment of basic financial issues like these will generally make it clear whether Chapter 7 or Chapter 13 bankruptcy will be the better choice. Consulting with an attorney will normally be the best way to be sure of choosing appropriately.