Why is Chapter 13 Better than Chapter 7? Here’s How to Know Which Type of Bankruptcy is Right for You

The primary decision when you file for bankruptcy for many is whether to file for Chapter 7 or Chapter 13. On the surface, Chapter 7 appears to be the simpler choice. It requires only a few months in the court system and offers a quick path to a mostly debt-free life.

But as simple and freeing as it seems, for many, it’s not the best option.

At first glance, Chapter 13 may seem more daunting due to its 3- to 5-year repayment plans. However, what seems like the easier option isn’t always the best route.

Are you considering bankruptcy? Here’s why Chapter 13 is often a more advantageous choice.

Flexibility in Managing New Debt

One significant advantage of Chapter 13 bankruptcy is the ability to adapt to new financial challenges.

Suppose you file for bankruptcy but then incur additional debt due to unforeseen circumstances like medical emergencies or job loss. With Chapter 13, you can dismiss your case and refile to include this new debt. This flexibility is not available under Chapter 7, where you’re essentially stuck with any new debt that arises after filing.

Future Debt Management

Filing for Chapter 13 provides a hedge against future debt issues. While Chapter 7 bankruptcy can only be filed once every eight years, Chapter 13 allows for the possibility of re-filing much sooner if necessary. This offers a valuable safety net for those who may face financial difficulties again shortly.

Asset Retention

Chapter 13 also comes with the significant benefit of allowing you to keep all your assets. In a Chapter 7 case, there’s always the risk of losing non-exempt property or cash. If your real estate increases in value before your case is closed, you could find yourself forced to sell it. Chapter 13 eliminates this risk by letting you repay a portion of your debts while keeping your assets intact.

Affordable Repayments

One of the most overlooked advantages of Chapter 13 is the affordability of its repayment plans. Payments are based on your income and the value of your assets, which means they can be as low as $150 per month or even less for some people. This feature makes it easier to manage repayments without severely impacting your lifestyle.

Voluntary and Adjustable

Chapter 13 is entirely voluntary and offers the flexibility to adjust your repayment plan if your financial situation changes. Unlike Chapter 7, which is more rigid, Chapter 13 puts you in 100% control over your financial restructuring journey.

Mortgage and Car Loans

Chapter 13 can be a powerful tool for catching up on overdue mortgage or car loan payments. Unlike Chapter 7, which doesn’t offer this benefit, Chapter 13 allows you to incorporate these arrears into your repayment plan. Additionally, you can potentially lower your car loan’s interest rate, reducing your monthly expenses without having to refinance.

Second Mortgages

If you’re upside down on a second mortgage, Chapter 13 offers a unique solution. You may be able to eliminate this second mortgage, something not possible under Chapter 7. This can significantly reduce your overall debt burden and improve your financial situation.

Tax Debt

If you owe back taxes, Chapter 13 allows you to pay these debts over 3 to 5 years without accruing additional interest or penalties. This can save you thousands of dollars compared to dealing with tax debts outside of bankruptcy.

Legal Fees

While Chapter 13 bankruptcy fees are generally higher than Chapter 7, the structure of payments is more manageable. In Chapter 7, you must pay legal fees upfront, whereas Chapter 13 allows you to include these fees in your repayment plan, making it easier to file your case quickly.

Though Chapter 7 may seem like the simpler and quicker option, Chapter 13 offers numerous benefits that make it a smarter choice for many individuals facing financial hardship. From greater flexibility and asset protection to affordable repayment plans and better future debt management, Chapter 13 provides a comprehensive solution for those looking to regain control over their financial lives.

For more information or to schedule a consultation to discuss your situation, contact R. Flay Cabiness, II, P.C. at (912) 417-5041 (Brunswick, GA); (912) 809-2141 (Hazlehurst, GA) or; (912) 324-3176 (Jesup, GA) to schedule a consultation.