Which Type of Bankruptcy Is Best?

Individuals typically file chapter 7 or chapter 13. The type of bankruptcy filed is determined by the particular relief you are seeking. Each type provides the individual debtor with differing types of benefits. While some of the benefits of Chapter 7 and Chapter 13 are different, they both provide the debtor with the opportunity for a fresh start, and when a debtor files for either Chapter 7 or Chapter 13, his creditors are prohibited by law from attempting to collect debts from him. This is called the automatic stay. Many people assume that Chapter 7 is better than Chapter 13 because Chapter 13 may require debtors to repay a portion of debt, whereas Chapter 7 wipes out most debts. But this is not always the case.

In the usual Chapter 7 all of a debtor's unsecured debt-debt without collateral or security-is discharged, or wiped out. This primarily consists of credit card debt, lines of credit, medical bills, payday loans, utility bills, and personal signature loans. Most secured debt is not affected by the filing. In most cases of Chapter 7, all property is exempt, and debtors can keep possession of all their property. These bankruptcy cases are called no-asset cases. Another benefit of a Chapter 7 bankruptcy is that you can obtain relief from your debts in a shorter period of time. The typical Chapter 7 case lasts only three to four months from the date you file your Chapter 7 case with the court until you receive your discharge.

A Chapter 13 bankruptcy is frequently used by individuals who want to catch up on past due home mortgages or car loan payments and keep their home or car. Other individuals use Chapter 13 to pay off debt to the IRS on favorable terms. Chapter 13 will also protect non-filing co-debtors from abusive debt collection activities. In Chapter 13 a debtor proposes a plan to pay all or part of the debts over a three to five year period. If the debtor makes these required payments, he will be able to keep his home or car and discharge his unsecured debts.

The other primary benefit of a Chapter 13 Bankruptcy is the 100% protection of your valuable assets from seizure by your creditors. Although Chapter 7 Bankruptcy provides for protection of your assets through either federal or state created exemptions, not all of your property may be completely shielded from seizure. If you own non-exempt assets that are paid in full or have significant equity, a Chapter 13 Bankruptcy will allow you to reap the benefits of the discharge, provide for the elimination of most unsecured debt, and allow you to keep all your hard earned assets.