BANKRUPTCY REVIEWS

Compare Chapter 7 Chapter 13

comparing chapter 7 and chapter 13

Deciding which chapter to file is the first step to filing bankruptcy. If you make the wrong choice it will drastically affect the success of your bankruptcy filing.

CHAPTER 7

Chapter 7 Benefits

Chapter 7 bankruptcy is the right type of bankruptcy for most people. If you have not filed bankruptcy in the last 8 years and you are not in foreclosure, they without a doubt, chapter 7 bankruptcy is the right choice.

The goal of a chapter 7 bankruptcy is to discharge or wipe out ones debts. Once the debts have been wiped out, there is no paying it back. The credit card companies and finance companies are stuck with the loss, and before you start to feel sorry for them, you need to remember that in spite of all the bankruptcies that people file, they laughing all the way to the bank with the profits they rack up from their excessive interest rates.

Chapter 7 bankruptcy has the added benefit of being very good for your credit. If you have bad credit before filing chapter 7 bankruptcy, then bankruptcy will improve your credit. 

Here are the reasons. If you are considering V chances are that your credit is already shot. Filing chapter 7 bankruptcy will not make it any worse. In fact your ability to borrow money or to finance a car goes through the roof the moment your debts are discharged in the chapter 7 bankruptcy.

The reason is that lenders like auto finance companies now that you can file chapter 7 bankruptcy only once every 8 years so they are assured that you will not have bankruptcy as an option when the finance your auto purchase. Secondly, they know that because chapter 7 bankruptcy has erased your debts, you will now have spare money to pay your new debts. 

Yes it is true that chapter 7 bankruptcy can stay on your credit for 10 years, but if you have bad credit and do not do anything about it, your bad credit could dog you for 20, 30 or even 40 years and more. 

If you decide that you cannot have chapter 7 bankruptcy on your credit for 10 years, it is possible to have it removed from your credit in a matter of one to two years after your chapter 7 discharge.

One or two of the companies we review such as American Online bankruptcy Center have information that can enable you remove the bankruptcy from your record in as little as 12 months after the discharge. In some rare cases, it can come off in even less time. You may want to read our detailed article on removing bankruptcy from your credit.

Perhaps the most important benefit of filing chapter 7 bankruptcy is that it frees you from debt. When you are strapped with crushing debt, there is nothing more liberating than to be declared debt-free by the court. It is an experience like no other. If you are reading this review, you know how you feel right now. You go to sleep and wake up every day with a sinking feeling. Your thoughts are along the lines of, "How am I going to pay the rent this month?" or "What will happen to my children if we lose everything."

With chapter 7 bankruptcy, the moment you file it, you are free. All the payments to the creditors come to an end and this happens even before your debts get discharged. Right from that moment, you no longer have to worry about borrowing from one lender to pay the other. You no longer have to live in hiding from your creditors and from the harassing phone calls.

Your freedom is immediate!

Chapter 7 Disadvantages

In a word, NONE!

CHAPTER 13

Chapter 13 Benefits

Chapter 13 bankruptcy has only one benefit.

The only benefit of Chapter 13 bankruptcy is that if you are in foreclosure on your mortgage and are about to lose your house, chapter 13 bankruptcy can give you the time to get caught up with the payments that you have missed paying.

Chapter 13 Disadvantages

If you are not facing foreclosure, then there really is no reason to file chapter 13 bankruptcy. It is that simple. If you do not have a foreclosure and you file chapter 13 anyway:

  • It will hurt your credit badly
  • You will fall further back in debt
  • Your chapter 13 will most likely get dismissed
  • You will end up filing a chapter 7 after the dismissal
  • And it could cause you to lose everything
  • Chapter 13 prolongs the agony

Strong words, right? Yes, and for good reasons. There are a lot of people who file chapter 13 bankruptcy ignorantly. Some think that chapter 13 bankruptcy will look better on their credit than chapter 7 bankruptcy. Some file it because they feel guilty for going bankrupt in the first place. If your debts are unsecured debts like credit cards, medical bills, personal loans, etc., filing chapter 13 bankruptcy will only cause the debts to mount and your credit to get worse. Here is why.

Most Chapter 13 bankruptcies will be dismissed or abandoned within the first 6 to 12 months. By 24 months, 90% or more of them have been dismissed. At the point in time when the chapter 13 bankruptcy is dismissed by the court or abandoned by the debtor, the total debt is usually a lot higher than when the bankruptcy was first filed. This is because the penalties and interest charges continue to pile up during the chapter 13, and unless you are paying down the debt fast, it just balloons.

In the end, once your chapter 13 has been dismissed, you will almost certainly file chapter 7 afteral. Had you just filed chapter 7 to start with, you would have spared yourself the aggravation, not to mention the money your re-payed the creditors while you are in chapter 13. All of that is lost money.

The other reason that most chapter 13s will get dismissed is because chapter 13 is NOT designed for people with serious financial problems. Chapter 13 works well only for people who have mild and temporary money problems and just need some time to get back on their feet. If you have serious money problems, those same serious problems are what will destroy the chapter 13 eventually.

It comes down to the fact that if you cannot pay your debts without chapter 13, under chapter 13 you will still have to repay those exact same debts and then some more debt. 

The "more debt" part is that the trustee tacks up to 10% more to your chapter 13 payments to cover his or her own fees. You see, they do not do it for free.


Have you been told that you do not qualify for chapter 7?


If you are filing chapter 13 because a lawyer has told you that you do not qualify for chapter 7 then you need to read this. It is possible to file chapter 7 even though you have been told that you make too much money to file chapter 7. Click here to read more about it.


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