Which Type of Bankruptcy is Best for You?

From time to time, you’ll hear a report or read an article about a famous company “filing for Chapter 11.”  In consumer bankruptcy cases, the vast majority of consumer cases are filed into either Chapter 7, or Chapter 13.  So which type of bankruptcy is best?

Is There a Best Type of Bankruptcy?

That’s a very good question, and here’s the quick, two-part answer:

  1. No form of bankruptcy is inherently and universally the “best.”
  2. The best type of bankruptcy for you will depend on your unique financial situation, and what you’re trying to accomplish with your bankruptcy.  There are instances where Chapter 7 is favorable, while Chapter 13 may be preferable for other people.

Before you can file for bankruptcy, you’ll have to take the Means Test.  In a nutshell, the Means Test measures your household income against state averages.  If your income level falls below a certain threshold, you can file for Chapter 7.  If your income level is too high, you will be filed into Chapter 13.

However, some people who qualify for Chapter 7 may be eligible for Chapter 13 instead, provided their disposable income is sufficient to cover a repayment plan with creditors.

Close-up of a bankruptcy petition

How to Choose Your Bankruptcy Chapter

The results are in: the Means Test determined you can file for Chapter 7.  However, you also have the option of filing for Chapter 13.  Which one do you pick?

When Chapter 7 Bankruptcy Might Be Better Than Chapter 13

You’re in a hurry.  On average, Chapter 7 plans take only four to six months to complete, whereas Chapter 13 plans move much more slowly and can take three to five years.  (If you’re really in a rush, you may want to consider filing an emergency bankruptcy.)

You want to eliminate the bulk of your debts.  This one seems like a “no-brainer” on the surface — who wouldn’t want to discharge most of their debt? — but it comes with a price.  Under Chapter 7, you eliminate most of your debts, but you also stand to lose more of your assets.  Under Chapter 13, the repayment requirements are higher, but you may be able to keep more of your property.

When Chapter 13 Bankruptcy Might Be Better Than Chapter 7

You want to protect others.  If you file under Chapter 7, any codebtors you might have on a debt will still be liable for paying up, even if you aren’t.  If you file under Chapter 13, your codebtors will be protected from creditors.

You want to keep your toys.  No one wants to give up their possessions if they can avoid it.  While Chapter 13 requires more repayment efforts than Chapter 7, the pay-off is that you’ll get to keep more of your assets.  Under Chapter 7, the price you pay for discharge is liquidation.

You’re playing catch-up.  Chapter 13 will allow you to retroactively catch up on missed payments toward your car, or even the mortgage on your home.  Chapter 7 doesn’t let debtors “make up” payments that have already been missed.

Pennsylvania Bankruptcy Lawyers Offering Free Consultations

Whether you’re leaning toward Chapter 7 or Chapter 13, both forms of consumer bankruptcy offer stability, freedom, and a chance to start fresh.  However, the bankruptcy process is often confusing and complicated.  An experienced bankruptcy lawyer can help you evaluate your legal options and guide you toward a successful discharge.  To schedule a free, private legal consultation, call the law offices of Young, Marr & Associates at (609) 755-3115 in New Jersey or (215) 701-6519 in Pennsylvania, or contact us online.