Chapter 7 vs. Chapter 13

Experienced Bankruptcy Attorney in Gainesville & Jacksonville

If you have decided that filing for bankruptcy might be right for you, the next step is to seek education about your options. At Ruff & Cohen, we are dedicated to ensuring our clients understand every possible avenue possible to seek relief from debt. Once our Jacksonville bankruptcy lawyers have determined that personal bankruptcy is the answer, we can guide you in the right direction. Most individuals file either a Chapter 7 bankruptcy, also known as fresh start or liquidation, or Chapter 13, also known as personal reorganization. If you are trying to save a business, you may be interested in a Chapter 11.

Pros & Cons of Chapter 7 Bankruptcy

People who file for Chapter 7 bankruptcy typically have modest incomes but heavy unsecured debt, credit card debt, and medical bills. If your monthly income is modest, you will likely qualify for this chapter of bankruptcy. Read more about this in our section about qualifying for Chapter 7 through the Median Income Test and Means Testing. In Chapter 7, many debts can be forgiven without a repayment requirement and it takes a shorter period of time compared to other chapters.

The Pros of filing Chapter 7 are:

• Cheapest. Chapter 7 is usually the most affordable kind of bankruptcy case to file because the attorney has less work to do than in a Chapter 13 or Chapter 11
• Fastest. Chapter 7 cases usually result in a Discharge being entered about 3 ½ months after the case is filed.
• No monthly required payment. Since there likely is no excess income, there is no requirement (as in Chapter 13) to pay monthly installments to your creditors. However, if you have excess property (non-exempt assets) you may voluntarily enter into a “buy-back” agreement with your Chapter 7 Trustee to avoid surrendering those assets. Buy-back agreements typically will only last 12 months at most (as opposed to 60 months in a typical Chapter13). If you enter into a buy-back agreement you will be making voluntary monthly payments to your trustee, but not because your income is high, but because you have accumulated more property that you are allowed to exempt and you prefer not to give up your non-exempt assets.

The Cons of filing Chapter 7 are:

• Can’t stop a mortgage foreclosure. If your home is in foreclosure, Chapter 7 can delay the foreclosure process only for a brief period of time – it is only a band-aid. You will likely have to move out soon. Of course, it is possible that you don’t want to keep your home anyway. For example, if your home is only worth $150,000 but you owe $200,000 on the mortgage, then your home is “upside-down” and you would be well advised to give up the $150,000 house in return for getting out of a $200,000 debt. Similarly, if your vehicle is only worth $12,000, but your car loan balance is $18,000, the smart move in a Chapter 7 is to surrender the car to the bank and get out of the debt.
• You may not qualify. You may want to file a Chapter 7 but be blocked from doing so because your income is too high. Read more about this in our section about Median Income Test and Means Testing.

Pros & Cons of Chapter 13

The Pros of filing Chapter 13 are:

• Stop a mortgage foreclosure. If you are facing foreclosure of your home.
• Avoid losing valuable assets. If you are worried about losing your valued assets as might be the case in a Chapter 7 bankruptcy then Chapter 13 bankruptcy may be right for you. For example, you may have rental property you want to protect that you would lose in a Chapter 7.
• Qualify for a type of bankruptcy, even if you can’t qualify for Chapter 7. Individual who have higher monthly incomes may not qualify for Chapter 7 and instead file for Chapter 13 to enjoy some debt relief.

The Cons of filing Chapter 13 are:

• More expensive. Chapter 13 cases require much more time and effort from the debtor’s attorney; thus the cost of filing a Chapter 13 is often double, or more, of the cost of a Chapter 7,
• Takes longer. Most Chapter 13 cases are 5 year plans, so they last 60 months whereas most Chapter 7 discharges are entered about 3 ½ months after filing.
• Requires financial belt tightening. You will have to go on a financial diet. You will have to limit your budget and expenses to necessities. All excess income you earn every month must be paid to creditors.

​Benefits common to both Chapter 7 and Chapter 13. Either a Chapter 7 or Chapter 13 will give you protection from:

• Wage garnishment
• Bank levies
• Repossession
• Creditor harassment
• Collection lawsuits

Set up a free case consultation with one of our Gainesville bankruptcy lawyers by calling us at (352) 376-3601.