Is Chapter 13 Bankruptcy an Easier Choice?

Bankruptcy is a legal process that offers a fresh start to individuals who are unable to pay their debts. There are two main types for individuals and families: Chapter 7 and Chapter 13. While both are viable options depending on your circumstances, Chapter 13 offers several advantages that make it easier to recover from than Chapter 7.

Chapter 7 bankruptcy often liquidates a debtor’s non-exempt assets to pay off creditors. After the process, the debtor is free of most common debts, but the impact on their credit report is substantial. It remains on the report for ten years, making it challenging to secure loans or credit at reasonable rates.

On the other hand, Chapter 13 bankruptcy, often referred to as a wage earner’s plan, allows debtors to create a plan to repay all or part of their debts. Debtors propose a repayment plan that makes installments to creditors over three to five years. Most people don’t know that the payments are designed to be affordable, which means if a person’s income is low the payment will probably be low. The key benefit here is that debtors can keep their property, which can be particularly beneficial if the debtor has significant equity in their home or other assets.

From a credit recovery perspective, Chapter 13 is typically more favorable. It is reported on your credit report for only seven years, three years less than Chapter 7. This shorter timeframe can make a big difference when you’re trying to rebuild your financial life.

Moreover, Chapter 13 is often viewed more favorably by creditors. This is because it shows an effort on the debtor’s part to meet their financial obligations, rather than completely eliminating their debts as with Chapter 7. Some may find chapter 7 more advantageous for their particular situation though, especially if they are renting or trying to buy a car in the near future.

It’s also worth noting that Chapter 13 bankruptcy offers more opportunities to negotiate the terms of your debt, which can lead to lower payments and less overall debt to pay off. This can make the recovery process easier and more manageable. For example car loans and tax payments can be modified and made more affordable in a reorganization plan.

Before making a decision, it’s crucial to consult with a knowledgeable bankruptcy attorney. At Liviakis Law Firm, we can guide you through the process and help you determine the best course of action for your situation. Give us a call at (916) 459-2364.