When is Chapter 13 Bankruptcy Preferable to Chapter 7 Bankruptcy?

Pop quiz: What’s the difference between Chapter 7 bankruptcy and Chapter 13 bankruptcy?

The main difference most people identify is with Chapter 7, almost all of your debt is forgiven (with a few exceptions). You don’t have to pay it back.

With Chapter 13 bankruptcy, debtors are responsible for paying back a bigger chunk of the money they owe.

So, for New Jersey and Pennsylvania individuals, filing for Chapter 7 bankruptcy seems like the better option, right?

Not necessarily.

The upside of Chapter 13

There are several situations where filing for Chapter 13 bankruptcy makes more sense. Basically, it all comes down to how much money you have tied up in property and what your income is.

If you have a lot of equity in a property and want to keep it, Chapter 13 is probably your best bet. For some people, the benefits of hanging on to those assets through the bankruptcy process outweighs the temptation to have more of your debt discharged.

Here’s a breakdown of some of the benefits of Chapter 13 bankruptcy:

  • You can extend the time (three to five years) you have to pay off past debts while holding on to most of your property.
  • Co-signers are more likely to be protected.
  • You will make one payment to a bankruptcy trustee, and creditors won’t be able to contact you during that protection period.

Debt is looming

Another good way to think about Chapter 7 vs. Chapter 13 bankruptcies: If you are earning a salary that allows you to keep up with your monthly bills and expenses, but can’t afford the regular payments to reduce your debt, Chapter 13 might be your best option.

If, on the other hand, you have very little income and not a lot of savings left, you may be better off pushing for a fresh start with Chapter 7.

But your first step should always be to talk to an experienced bankruptcy professional, like the representatives at Young, Marr, Mallis & Associates.

What if you’re not eligible for Chapter 7?

In many cases, individuals don’t get to choose what bankruptcy model is best for them. Here are two situations where people would not qualify for Chapter 7, leaving Chapter 13 bankruptcy as their only option:

For the six months leading up to filing, your monthly income is more than the median income for a household of your size in your state.

You fail the “means test” — you have enough disposable income to pay back the debt you owe over an agreed-upon period of time.

Once you have an idea of your financial situation, your next step should be to talk to a bankruptcy professional.

If you, or someone in your family, is going through financial hardship, bankruptcy may be the solution to stop creditor actions and erase your money problems. Contact our law offices today for an immediate consultation with our experienced bankruptcy attorneys. This is one opportunity you simply cannot afford to miss.

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