Choosing to file for bankruptcy -- or being in a situation where filing
is the only option -- can feel like the end of the world. It can also
be very overwhelming. Your choice to file is only the first of many decisions
you'll have to make. One of those decisions might be which chapter
you should file under. For some, there will only be one option. If you
only meet the eligibility requirements for Chapter 13, for instance, then
your choice is made for you. But what if you get to choose? Would you
know the benefits of filing for one chapter over the others? While every
bankruptcy case is an individual matter and many factors will play into
your final decision, here are some common reasons that people end up choosing
Chapter 7 bankruptcy over Chapter 13.
Chapter 7 is a Clean Slate
While Chapter 11 and Chapter 13 bankruptcy both require you to adhere to
a payment plan, Chapter 7 wipes away most, if not all, of your debt. In
other words, it's a clean slate. If a business or individual finds
themselves unable to afford a payment plan, they may choose to file Chapter
7 bankruptcy. Take the recent case of
Hobbico, for example. They chose to convert their Chapter 11 bankruptcy into a
Chapter 7, or liquidation, bankruptcy because, in part, they couldn't
afford a Chapter 11 payment plan. They opted to simply wipe the slate
clean, sell their assets, and start over.
Chapter 7 Protects Certain Forms of Income
Another feature of Chapter 7 bankruptcy that many find favorable is the
protection of certain forms of income that you're afforded. For instance,
you can't be forced to cover debt using things like workers compensation
payments, pensions, unemployment, child support, and the like. Chapter
7 also protects your future income since you won't have to worry about
large payments being automatically taken from your earnings in order to
pay back a reorganized version of your debt.
Chapter 7 Has No Limit on Total Debt
Chapter 7 bankruptcy, there's no limit to the amount of debt you can discharge. In contrast,
other chapters, like Chapter 13, have eligibility requirements that cap
the amount of debt you can have. Put another way, if you have too much
debt, you can't file under Chapter 13 even if you wanted to. For some,
the ability to discharge more debt is reason enough to go with Chapter 7.
Chapter 7 is Faster
For the most part, Chapter 7 bankruptcy allows you to get rid of your debt
more quickly than a reorganization plan like Chapter 13 would. Many people
have found that their debt was released and their case was closed within
three months. Anyone facing bankruptcy certainly wants to get the process
over and done with as quickly as possible, so the efficiency alone is
often a major reason people decide that Chapter 7 is right for them.
The US Courts have set up a
means test that you can fill out to determine whether or not you're eligible
for Chapter 7 bankruptcy. However, bankruptcy, like all legal matters,
is a complicated issue, and each case is unique. It's important to
consult with a qualified bankruptcy attorney to make sure you're choosing
the path that's most beneficial to you.
If you have questions about filing for Chapter 7 bankruptcy, our legal
team is standing by to help. Contact the
Law Offices of James C. Shields today.