Chapter 13 versus Chapter 7
by Adam Fara
I am often asked, “Which is better, Chapter 7 or Chapter 13?” It’s a difficult question to answer and I usually answer that question with a question. Which is better, a hammer or a screwdriver? The reason I asked that is because most people recognize that a hammer is a good tool to use if you have a nail to drive in. However, a screwdriver is a good tool to use if you have a screw to screw in.
That idea is the same when choosing a Chapter 7 or Chapter 13 case. Both chapters should be looked at as different tools that perform different financial jobs. So, the better chapter of bankruptcy to file is determined by the job you need done. The trick isn’t figuring out which one is best, the trick is figuring out which one is best for you.
Maybe the best way to look at these two “tools,” is by looking at their pros and cons.
Length is an issue that many people look at when determining their bankruptcy path. And, there is a huge difference in the amount of time it takes to complete the different chapters of bankruptcy. A typical Chapter 7 case usually takes about 3 months. That is really fast for a court proceeding and is a plus for Chapter 7. Chapter 13, on the other hand generally lasts three to five years. It is a much bigger time commitment and is usually seen as a negative.
But most people don’t have the luxury of choosing their bankruptcy simply on the time that is required to complete the case. Most people are driven to bankruptcy due to the type of debt they possess. The type of debt is more often what determines the best course of action when it come to filing bankruptcy. For example, if you have a home and have gotten behind on your mortgage payments a Chapter 13 case will allow you up to five years to bring your mortgage payment current. During that time the mortgage company is not allowed to foreclose and a Chapter 13 may in fact allow someone to keep their home. Chapter 7 has no such provisions and is not a good option to try to cure missed mortgage payments.
Many people turn to bankruptcy due to credit cards, medical bills, payday loans or other unsecured debt. These debts usually have higher interest rates and have a knack of just getting bigger over time. Debts such as these are typically dischargeable in a Chapter 7 case and can be gotten rid of rather quickly. Chapter 7 can provide a fresh start to those how need that relief.
Other people seek bankruptcy relief because they have missed a few car payments, but they still need to keep the car. Again, there is a big difference between the bankruptcy options; one will allow you keep your car and one will likely result in the car being repossessed. Chapter 13 is designed to allow the filer to keep property that might otherwise be repossessed. A Chapter 13 will allow payments to be made over time to pay off a vehicle and will prevent the car lender from repossessing the vehicle.
As you can see, there are many uses for the financial tools available through bankruptcy. There isn’t on Chapter that is better than another, however, there often is one chapter that is better for you. It is important to choose which tool you use wisely so you can maximize the benefits of this proceeding.