Should I Choose Chapter 7 or Chapter 13 Bankruptcy? A Comparative Analysis for Californians
Filing for bankruptcy is a significant decision that requires careful consideration and understanding of the available options. The two primary forms of consumer bankruptcy are Chapter 7 and Chapter 13. Each serves a unique purpose and has distinct advantages and disadvantages. This blog offers a comparative analysis to help Californians understand the two types of bankruptcies; however, before making a final decision, it is important to discuss your situation with a qualified Los Angeles bankruptcy attorney.
Chapter 7 Bankruptcy
Often referred to as “liquidation” or “straight” bankruptcy, Chapter 7 allows you to quickly discharge most of your unsecured debts.
Advantages of Chapter 7
- Speed: Chapter 7 typically takes four to six months to complete, making it a relatively fast way to eliminate debt.
- Discharge of Debts: Most unsecured debts, such as credit card balances, medical bills, and personal loans, can be eliminated.
- No Repayment Plan: Unlike Chapter 13, there’s no need to create a repayment plan for creditors.
Disadvantages of Chapter 7
- Potential Asset Loss: Non-exempt property may be sold to repay creditors. However, California’s generous exemptions often protect essential assets.
- Qualification Requirements: You must pass a “means test” based on income, expenses, and family size. High earners may not qualify.
- Impact on Credit: A Chapter 7 bankruptcy remains on your credit report for 10 years, although many individuals who file are able to rebuild their credit in as little as 2 years.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, known as “reorganization” bankruptcy, allows you to create a repayment plan to pay back some or all of your debts over 3-5 years.
Advantages of Chapter 13
- Protection of Assets: You can keep all your property, including non-exempt assets.
- Flexibility with Secured Debts: You can reschedule secured debts, potentially lowering payments.
- Possible Discharge of Additional Debts: Some debts not dischargeable in Chapter 7 may be wiped out in Chapter 13.
- Co-Signer Protection: Co-signers may receive protection from creditors during the repayment period.
Disadvantages of Chapter 13
- Length of Process: The repayment plan lasts three to five years, making it a longer commitment.
- Impact on Lifestyle: You must adhere to a strict budget during the repayment period.
- Impact on Credit: Remains on your credit report for seven years but may be viewed more favorably than Chapter 7.
Contact Los Angeles Bankruptcy Attorneys, Wadhwani & Shanfeld
Deciding between Chapter 7 and Chapter 13 bankruptcy is a nuanced choice that must align with your financial goals, assets, income, and personal preferences. While Chapter 7 offers a fast path to debt relief, Chapter 13 provides more flexibility and protection for valuable assets.
Remember, bankruptcy is a legal process, and professional guidance is invaluable. The team at Wadhwani & Shanfeld has the experience and expertise to navigate the complexities of bankruptcy law in Los Angeles, ensuring that you make an informed and strategic decision.
If you’re facing financial difficulties, understanding your options and seeking professional assistance is the first step toward regaining control of your financial future.