In California, as in other US states, residents facing significant financial difficulties often consider bankruptcy as an option to obtain debt relief and a financial reset. But when comparing Chapter 7 vs Chapter 13 bankruptcy, which is the best option for you? An experienced bankruptcy attorney will evaluate your case and guide you in your decision.
Key Takeaways
- The difference between Chapter 7 and 13 bankruptcy lies in the approach to debt settlement.
- By opting for Chapter 7, the debtor can be freed from most of their accumulated debts once the bankruptcy process is completed, but this may entail the loss of non-exempt assets.
- Chapter 13, or “reorganization bankruptcy,” allows the debtor to present a payment plan to restructure their debts over three to five years. The process is longer, but if obligations are met, debts are eventually eliminated.
Chapter 7 Bankruptcy: Advantages and Disadvantages
When trying to decide between Bankruptcy Chapter 7 vs 13 bankruptcy, it is important to know the scope and limitations of filing for bankruptcy in the United States.
The main difference between Chapter 7 and Chapter 13 is that in the first option, assets are liquidated to pay debts, while in the second, the debt is restructured into payments spanning several years.
Chapter 7 of the Bankruptcy Law is known as “liquidation bankruptcy.” In this case, a trustee is appointed to liquidate your non-exempt assets and distribute the funds among creditors.
This way, you will be able to settle your debts, such as car loans, health insurance, credit card debts, and utility debts, after passing a “means test” to determine that your income is low enough to qualify for this bankruptcy.
The main advantages of Chapter 7 bankruptcy are:
- Getting rid of debts: Once the Chapter 7 bankruptcy process has been completed, the debtor can get rid of most of their accumulated debts and start over.
- Fast process: Compared to other bankruptcy chapters, Chapter 7 is generally a fast process that can be completed in a few months, allowing the debtor to get out of the debt situation more quickly
- No monthly payments: You will not have to make any monthly payments to your creditors, which can be a great relief if you are having difficulty paying your current debts.
Disadvantages of Chapter 7 bankruptcy include:
- Loss of assets: The debtor may be forced to sell certain non-exempt assets to pay creditors, resulting in the loss of property, vehicles, or others.
- Impact on credit score: A Chapter 7 bankruptcy will remain on a debtor’s credit report for ten years, making it difficult to get credit in the future.
- It doesn’t eliminate all debts: It doesn’t eliminate certain types of debts, such as alimony, child support, recent taxes, and federal student loans.
Chapter 13 Bankruptcy: The Pros and Cons
When evaluating Chapter 7 and Chapter 13 bankruptcy, you should know that Chapter 13 or “reorganization bankruptcy” allows the debtor to file a payment plan to restructure his or her debts over a three- to five-year period and make monthly payments.
The main benefits of Chapter 13 bankruptcy or voluntary debt reorganization are:
- Your assets, such as your home and car, will be protected
- It makes it easier to create a manageable payment plan
- Creditors cannot contact you
- If you meet your obligations, all debts are eliminated at the end of the plan
- It can help improve your credit history in the long term
Cons of Chapter 13 bankruptcy include:
- The process is longer and more complex than Chapter 7
- If you stop making payments on your repayment plan, they could ask to have your bankruptcy dismissed
- It stays on your credit record for seven years
Chapter 7 vs Chapter 13 Bankruptcy: Which is the Best Option for a California Resident?
To determine between Chapter 7 and 13 bankruptcy which is the best option for a California resident, it is important to consider several aspects, such as your individual financial situation, income, assets, debts, and long-term goals.
With the assistance of a competent bankruptcy attorney in Los Angeles or San Diego, you should weigh between Chapter 7 and 13 bankruptcy: if you have a lot of unsecured debts and do not mind losing some assets, Chapter 7 is your alternative. However, if you want to keep your assets and have enough income to make monthly payments, Chapter 13 may be the best option.
Remember that before deciding between Chapter 7 and 13 bankruptcy, it is best to have legal assistance to help you in the process of how to declare bankruptcy.
Contact S&B Legal if you have questions about which type of bankruptcy to file for
If you are considering filing for bankruptcy and are unsure whether Chapter 7 or Chapter 13 bankruptcy may apply to you, now is the time to request a free evaluation from our bankruptcy attorneys. We have the experience to thoroughly analyze your situation and determine which of these bankruptcy chapters is best for you to achieve the financial rebirth you desire. Consult now!
Summary
If you’re thinking about filing for bankruptcy chapter 13 or 7 in California involves weighing the differences between the two types of bankruptcy. Chapter 7 involves liquidating assets to pay off debts, while Chapter 13 restructures debts into payments over several years. Each of these alternatives has its pros and cons, so it is recommended to evaluate your individual financial situation with the help of an experienced bankruptcy attorney.
Frequently Asked Questions
What is the main difference between Chapter 7 and Chapter 13 bankruptcy in the United States?
The main difference between Chapter 7 and Chapter 13 bankruptcy is that Chapter 7 liquidates assets to pay off debts, while Chapter 13 restructures debts into payments over a number of years. Bankruptcy is a complex area of law and legal assistance is best advised [1].
What are the advantages of Chapter 7 bankruptcy?
Some advantages include getting rid of most debts, a quick process that can be completed in just a few months, and eliminating monthly payments to creditors.
What are the disadvantages of Chapter 7 bankruptcy?
Disadvantages include the potential loss of assets, the impact on credit rating that can last ten years, and the fact that it does not eliminate certain types of debts such as alimony or federal student loans. Filing for Chapter 7 bankruptcy is more expensive than Chapter 13 [2].
What are the benefits of opting for Chapter 13 bankruptcy?
Some benefits include protecting assets like your home and car, creating a manageable payment plan, eliminating all debts at the end of the plan, and potentially improving your credit history in the long run.
What is the recommendation for deciding between Chapter 7 and 13 bankruptcy in California?
It is recommended that you evaluate your individual financial situation, income, assets, debts, and long-term goals with the help of a competent bankruptcy attorney to determine whether Chapter 7 and 13 bankruptcy is the best option. Seek legal advice on the pros and cons of bankruptcy in California before making a decision.
Is it cheaper to file chapter 7 or 13?
Filing Chapter 7 bankruptcy can cost anywhere between $1,800 and $2,300. On the other hand, Chapter 13 filing can cost between $4,500 and $5,300 [3].
