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Chapter 7 vs Chapter 13

Head to Head. Which is Better?

Normally one will be better than the other for a particular situation. Comparing Chapter 7 vs Chapter 13 can be difficult. Here are the highlights of both chapters. Once you have the basics, you’ll have a pretty good idea which one may be right for you. In reviewing the pros and cons of Chapter 7 vs Chapter 13, you should keep an open mind. Try not to be affected by “other peoples ideas” about filing bankruptcy and about the different chapters. Try to set this aside as you learn about the differences and how you can benefit from each chapter.

Which is Better Chapter 7 or Chapter 13?

Clients ask me this regularly. It’s like a trick question. The answer is, it depends on what you need, and what you’re trying to accomplish. Depending on your situation and goals, either chapter might work well. We can often make one chapter do the same work as the other. You may want to be in a Chapter 7, but may only qualify for Chapter 13. But if your Chapter 13 is set up to deliver the same or even a better outcome as the Chapter 7, is it “worse” than the Chapter 7?

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Chapter 7 vs Chapter 13 on Your Credit Report

Chapter 7 will stay on your credit report for 10 years from the filing date. But Chapter 13 will stay on your credit report for 7 years. But this does not mean that your credit is tarnished for 7 to 10 years. What you do after you file is critical to your credit recovery. If your goal is to buy a house as quickly as possible, you should know that some lenders will offer mortgages to consumers in Chapter 13 after only one year. Compare this to the 2 to 3 year wait after a Chapter 7 discharge.

If your goal is just to improve your credit score as quickly as you possibly can, but are not interested in buying a house, the Chapter 7 wins over Chapter 13. Why? Because, in part, the Chapter 7 is over faster. Chapter 13 cases last for 3 to 5 years before you get a discharge.

Why Consider Chapter 13 if You Qualify for Chapter 7?

In comparing Chapter 7 and 13, when would you ever chose Chapter 13 if you qualify for Chapter 7? There can be lots of reasons. Although most consumers, and attorneys, jump to the Chapter 7 bankruptcy option if its available, they “leave money on the table” by not really doing an in-depth comparison of the two. Sometimes you qualify for Chapter 7 but need to file Chapter 13. If you are behind on house payments or car payments, you will want to consider Chapter 13 to catch these payments up. You need to be current on your payments to keep, or reaffirm, these debts in a chapter 7.

Income Limits for Chapter 7 Bankruptcy

The most common reason people file Chapter 13, however, is that they make too much money to file for a Chapter 7. These people may need to file Chapter 13. The income limits for Chapter 7 are adjusted periodically, so be sure to check current information. Even if your income is above the median for your family size you may still be able to file Chapter 7. The means test can be legally manipulated.

When you’re considering which bankruptcy chapter to file, you ought to consult a certified specialist to help you. It’s free, and no matter how much internet research you do, it’s never as good as checking with a seasoned professional.

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