SHOULD I FILE CHAPTER 7 OR CHAPTER 13?

Chapter 7 is the preferred form of bankruptcy because it eliminates debts.  There are no payment plans or future obligations unless the individual chooses.  However, an individual must qualify to file a chapter 7 Bankruptcy through means testing. The Bankruptcy “means test” determines whether you qualify based upon your income and household size.  The formula is designed to prevent high income Debtors from filing for Chapter 7 Bankruptcy.  High income Debtors who fail the means test may use Chapter 13 Bankruptcy to repay a portion of their debts.  You don’t have to be penniless to qualify for Chapter 7.  Most individuals are able to qualify and receive a Chapter 7 discharge.

Chapter 13 is often used to stop a foreclosure and create a payment plan to catch up the past due amounts.  Similarly, it can be used to stop repossession of an automobile.  Debtors who may not be eligible for Chapter 7 relief are often able to obtain the relief they need through a Chapter 13.  Regardless of the reason that Chapter 13 is chosen, the Debtors are provided an orderly payment plan, relief from creditor harassment, and may only have to pay a fraction of their debts.

Certain debts are not dischargeable in a Chapter 7 but are dischargeable in a Chapter 13.  For example, a Chapter 13 Debtor may only have to pay a small portion of a property settlement or judgment from a divorce but would not be allowed any relief from that debt in a Chapter 7.

Some debts must be paid in full regardless of which chapter the Debtor chooses.  These debts include child support, maintenance/alimony and most taxes.  However, a Chapter 13 Bankruptcy can assist in creating an affordable payment plan and provide relief from creditor harassment.