Chapter
7 bankruptcy has some significant advantages over
Chapter 13 bankruptcy.
Most people who file
for bankruptcy choose Chapter 7 bankruptcy because
it's fast, effective, easy to file, and doesn't require
payments over time.
Advantages of Chapter 7 Bankruptcy
A typical Chapter
7 bankruptcy case is opened and closed within three
to six months, and the person filing emerges debt-free
except for a mortgage, car payments, and certain
types of debts that survive bankruptcy, such as student
loans, recent taxes, and unpaid child support.
Although you can lose
property in Chapter 7 bankruptcy, most filers don't.
Bankruptcy lets you keep most necessities -- if you
have little to begin with, chances are good you'll
be able to keep all or most of your property (unless
you pledged the item as collateral for a loan).
However, not everyone
is eligible to use Chapter 7 bankruptcy. If your
income is sufficient to fund a Chapter 13 repayment
plan, after subtracting what you'll spend on certain
allowed expenses and monthly payments for child support,
tax debts, secured debts (such as a mortgage or car
loan), and a few other types of debts, you won't
be allowed to file for Chapter 7 bankruptcy.
Drawbacks of Chapter 13 Bankruptcy
Probably the main
reason most people prefer Chapter 7 bankruptcy is
that it doesn't require you to repay any portion
of your debts, as Chapter 13 bankruptcy does. And
if you use Chapter 13 bankruptcy, you must complete
the entire three- to five-year repayment plan in
order to have your remaining debts discharged (unless
the court lets you off the hook early, for hardship
reasons). The majority of those who file for Chapter
13 bankruptcy don't complete their plans, so filers
run a very real risk that their debts won't ultimately
be discharged.
Despite this major
potential drawback, there are some good reasons why
people who are eligible for both types of bankruptcy
choose to use Chapter 13.
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