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Chapter 7 vs. Chapter 13 Bankruptcy

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by , 10-07-2011 at 06:42 PM (1291 Views)
Individuals typically prefer Chapter 7 bankruptcy because it is easier. Chapter 7 has strict qualification requirements because it allows the debtor to be free of most debts even if their current assets will cannot pay back all debts.

Assuming an individual qualifies for Chapter 7, what are the advantage of filing for Chapter 7 over Chapter 13?

Chapter 7 is appropriate if the debtor is unable to pay debts via a repayment plan.

If a debtor needs quick relief from creditors, Chapter 7 discharges the debtor from liability for most debts as soon as the court issues a discharge order. This can occur as quickly as 3 months.

Debtors should file for Chapter 7 bankruptcy if they have mostly unsecured debt that qualifies for discharge. Examples of dischargeable, unsecured debt might include credit cards and medical bills.

Chapter 7 has no debt limits whereas Chapter 13 does have limits of the amount of debt a debtor can have and still qualify for Chapter 13.

Chapter 13 is limited to individual debtors so business debtors cannot file.

Why chose Chapter 13 bankruptcy?
If a debtor does not qualify for Chapter 7 bankruptcy, their only other bankruptcy option is Chapter 13. However, assuming the debtor has income to pay off debts under a court approved reorganization plan,

Chapter 13 has some advantages over Chapter 7:
Property that is in the process of foreclosure (home) or repossession (e.g. car) can be retained in Chapter 13 bankruptcy whereas they would not be retainable in Chapter 7 (see below for more details).

Nonexempt, unsecured property that would be liquidated in Chapter 7 bankruptcy can be retained in Chapter 13. Certain debts that may not be eligible for discharge under Chapter 7 are eligible under Chapter 13, including court fees and condominium fees.
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