4 Reasons To File For Chapter 13 Bankruptcy Instead Of Chapter 7

By now, you already know that you have two main options when filing for bankruptcy — Chapter 7 and Chapter 13. Which option is suitable for you will depend on various factors, like your financial situation and how you want to achieve debt freedom.   

Sometimes, Chapter 13 bankruptcy is your only option. For example, if you have too much income, you may not qualify for Chapter 7. And, even if you're eligible for Chapter 7, there are situations when filing for Chapter 13 is more advantageous. A Chapter 13 bankruptcy lawyer will identify these situations and advise you accordingly. Meanwhile, here are four reasons to file for Chapter 13 instead of Chapter 7. 

Saving Your Property

If you want to become debt-free without losing your home or car, Chapter 13 is your best option. In Chapter 7, your assets are taken by the bankruptcy trustee to pay off your creditors, so you may end up losing your home. 

With Chapter 13, you don't have to part with any of your property. Instead, the debt is restructured in a 3–5-year repayment plan and discharged once you have completed the plan. You get to solve your debt woes without losing everything you have worked so hard for. 

Protect Your Co-Debtor

If you have guarantors or cosigners on your debts, filing for bankruptcy also affects them. Your bankruptcy discharge only applies to your specific obligations to pay the discharged debts but doesn't affect their liability or responsibility. However, the level of protection they receive depends on whether you're filing for Chapter 7 or Chapter 13.

With Chapter 7, your creditors can still go after your co-debtors for debt collection. But in Chapter 13 bankruptcy law, there is a provision known as automatic stay whose aim is to protect co-debtors. They will be off the hook as long as you maintain your bankruptcy plan payments. 

You Want to Repay Your Debts

Are you one of those people that view debt as a matter of honor? If so, you may want to fulfill repayment obligations to your creditors. But since you're going through a rough time financially, you may want an allowance of a few more years to achieve that.

In Chapter 7, the debt is discharged within three months, so you may not get your wishes. But in Chapter 13, you get up to 5 years to repay your debts.

Cheaper Upfront Fees and Costs

Many debtors want immediate debt relief but cannot afford the upfront costs required for Chapter 7 bankruptcy. For example, when filing Chapter 7, you are required to pay upfront fees for an attorney, which you may not have. 

In Chapter 13, the attorney fees don't have to be paid upfront. You can break the fees into installments to be paid through your repayment plan. You don't have to take additional debts or borrow money from friends to pay your attorney. 

For more information, contact a bankruptcy attorney near you.