You may have read that Chapter 7 bankruptcy clears many debts that Chapter 13 can only restructure. You might be wondering why you would even consider Chapter 13 if it does not get rid of your debt.
Chapter 13 has certain advantages over Chapter 7
Both options come with distinct pros and cons. These are some of the reason you may opt for a Chapter 13 bankruptcy:
- Chapter 13 is not means-tested: Chapter 7 is means-tested. If you fail to come in under the cutoff point, you have two choices. Wait until your income lowers and retake the test. Or choose Chapter 13.
- Chapter 13 gives you more chance of retaining your home: Many homeowners choose Chapter 13 when they have made considerable payments. If you declare Chapter 7, a court might order your home to be sold to repay creditors what you can. It can also apply to other assets. If you want to retain them, Chapter 13 may be a better choice.
- You can file for Chapter 13 sooner after a previous bankruptcy: Chapter 7 wipes out more debt, so there are stricter restrictions on how soon you can file again. If you previously filed for Chapter 7, you can file for Chapter 13 after four years but cannot file for another Chapter 7 until eight years have passed. If you previously filed a Chapter 13, you can file another after two years but would not be allowed to file Chapter 7 until six years have passed.
- Chapter 13 is removed from your credit score sooner than Chapter 7: Chapter 13 remains seven years on your credit rating. Chapter 7 stays for 10 years.
There are various other advantages and disadvantages to Chapter 13 versus Chapter 7. A bankruptcy attorney can explain more and help you make the right choice. It is worth bearing in mind that many people who choose Chapter 13 end up filing for Chapter 7 because they fail to make the rescheduled payments. While Chapter 13 may seem like the better option, sometimes Chapter 7 is a more realistic one.
