A big difference between filing chapter 13 vs chapter 7 bankruptcy (BK) is income level. Your income level will determine whether you fall into ch 7 or ch 13.
Ch 7 is regularly simpler and takes less time than Ch 13.
71% of BK cases are Chapter 7 cases. The rest (29%) is Chapter 13 bankruptcies.
Under Chapter 7 you ask the court to eliminate your obligation to pay unsecured debts, but you risk losing nonexempt properties.
On the other hand, under Chapter 13 you can protect those properties you would lose under ch 7.
Chapter 13 vs Chapter 7 Bankruptcy
Chapter 13 is known as a reorganization bankruptcy. It’s designed for debtors with regular income, who have enough disposable income to pay off a portion of their debts.
Debtors prefer to file Ch 13 because it offers more benefits, like keeping your properties.
Mostly, Ch 13 Bankruptcies are for people who:
- Don’t qualify for BK 7 but need debt relief (smaller credit card payments, stop litigation, or prevent a wage garnishment)
- That fell behind on home & auto loan payments and want to get caught up on missed payments and keep their property.
- Have nondischargeable debts like alimony or child support arrears that they’d like to pay off soon.
What are the pros and cons of Chapter 13?
- Property securing debt
- Nonexempt Property
- Not eligible for Chapter 7
- Most people can’t complete the repayment plan
- Attorney fees
- Too much debt
Chapter 7 is referred to as a liquidation BK. All your properties and belongings are sold to pay off your debts.
People who file for ch 7 usually have limited income who don’t have the ability to pay their debts at all.
Typically, Ch 7 Bankruptcies are for people who:
- Have limited income and household income is below the median level of your state
- Need to quickly discharge most debts and get a fresh start
- Individuals and business entities
What are the pros and cons of Chapter 7?
- Relief Come Quickly
- No Repayment
- You can keep property securing a debt
- No relief from non-dischargeable debts
- You could lose expensive property
- Can catch up on mortgage or car loans
What Is the Cost of Applying for Chapter 7 or Chapter 13 Bankruptcy?
There is a filing and administrative fee when you file for Chapter 7 or Chapter 13. It costs $335 to file for a Ch 7 bankruptcy and $310 for a Ch 13.
You can ask the court for permission to pay the fees in four monthly installments and you can also apply to have the fees waived.
You will be responsible for paying all lawyer's fees, which will likely be around $1,500 and $4,000 depending on whether your file chapter 13 or 7 and the complexity of the case in general.
Which type of BK will provide you with the debt relief you are looking for depends on many factors.
If you have a regular income, filing a Chapter 13 bankruptcy may be better in the long run.
Of course, to give yourself the best possible chance in a Chapter 13 reorganization, you should hire a bankruptcy lawyer for your bankruptcy case.
If you’re struggling mostly with unsecured debts and qualify for Chapter 7 relief, it will likely get you back on your feet much quicker.