Which is Better Chapter 7 or Chapter 13?
The Most Asked Question in Bankruptcy
Which is better chapter 7 or chapter 13 is a bit of a trick question. The answer is, of course, that it depends on what you are eligible for, what your income is, what your debts are, and your goals. All of these factors play a part in determining which chapter is better for a specific situation.
When Chapter 7 is Better Than Chapter 13
Chapter 7 is better, generally, for people who have lower income, few assets, and can afford to stay current on things they need to keep, like their car. A 7 is relatively short, about 5 months from beginning to end, and is less expensive than the 13. If your income is under the median income for your family size, you will probably qualify for chapter 7.
When Chapter 13 is Better Than Chapter 7
Chapter 13 is better, generally, when your income is over median, and you want to keep property that you have fallen behind on. If you’re behind on your car or house payments, a 13 will allow you to catch up on those payments over 3 to 5 years. Better than a 7 in some cases, the 13 can lower your car payment if you qualify, and can “strip off” second mortgages and home equity lines of credit, if you qualify.
Chapter 7 vs Chapter 13 on a Credit Report
One downside of filing bankruptcy is delay in getting some loans. Mortgage lenders often require that you wait two to three years after discharge before getting a new mortgage loan, and other large loans may take some time to qualify for. But, by taking the proper steps to rebuild your credit after bankruptcy you’ll find that there is much less of a downside of filing bankruptcy, and you could obtain a credit score of over 650 within a year of your bankruptcy discharge.
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Here are two helpful calculators for managing your debt repayments and Chapter 13 commitments.