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Chapter 7 or Chapter 13: Which fits you better?

On Behalf of | Dec 21, 2020 | Bankruptcy |

As you begin thinking about bankruptcy as the way to get out of debt and give you a new financial start, you likely have many questions with regard to the various bankruptcy options you have and how each of them works. 

FindLaw reports that 71% of consumers choose to file Chapter 7, while 29% choose Chapter 13. These statistics, however, do not mean that Chapter 7 always represents your best choice. Your bankruptcy goals determine that. 

Chapter 7 overview

If your main bankruptcy goal is to get out from under crushing credit card and other consumer debt brought about by unexpectedly high medical bills or a lost job that requires you to live on your credit cards, Chapter 7 serves those interests well. Why? Because Chapter 7 is a straight liquidation procedure that discharges virtually all of your consumer debts, including the following, in only 3-4 months: 

  • Credit card debt
    •Overdue medical bills
    •Debts turned over to collection agencies
    •Overdue utility bills 

Keep in mind that you must qualify for Chapter 7 by meeting the income requirements of California’s means test. This test requires you to have a monthly income of no more than $5.030 if your household consists of you only. This income level increases as the number of people in your household increases. 

Chapter 13 overview

If, however, your main bankruptcy goal is to save your home from foreclosure and your vehicle(s) from repossession, Chapter 13 likely becomes your better choice. Why? Because while Chapter 7 can forestall these proceedings, it cannot stop them. Chapter 13 can because it represents a debt reorganization rather than a debt discharge.