Pros & Cons of Chapter 7 Vs. Chapter 13 Bankruptcy

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When filing personal bankruptcy, you have the option of filing for Chapter 7 or Chapter 13 bankruptcy. While they both provide you some protection from your creditors, they differ in some key areas. Before you choose a chapter under which to file, you need to understand the pros and cons of each option.

Pros of Chapter 7

  • The biggest advantage of filing for Chapter 7 is that you can completely wipe out most of your debt. With unsecured debts, you should have no issues getting them discharged with the help of the court. This essentially gives you a clean slate with which to work. With other debt solutions, it might take several months or years to eliminate your debt. With a Chapter 7 bankruptcy filing, you can get the entire process over within a few months.

Cons of Chapter 7

  • One of the major disadvantages of filing for Chapter 7 bankruptcy is that you could lose some of your property. With a Chapter 7 bankruptcy, the bankruptcy trustee has the option to take your non-exempt property and sell it to repay your creditors. This means that you could potentially lose your house or your car, if it is not exempt. Another drawback of this type of debt relief is that you can only file once every 8 years.

Pros of Chapter 13

  • The major advantages of filing Chapter 13 bankruptcy is that you can keep all of your property. With Chapter 13 bankruptcy, the bankruptcy trustee does not have the opportunity to liquidate any of your property to repay your creditors. Instead, you repay your creditors with a payment plan over time. If you happen to have any cosigners on debts, you can keep them out of the bankruptcy proceedings. You can simply agree to pay the debt through the payment plan and it will not affect them.

Cons of Chapter 13

  • The biggest disadvantage with filing for Chapter 13 is that it does not completely eliminate your debt like a Chapter 7. You still have to repay all of your debts over time. In some cases, you can get the total amount that you have to pay reduced, but you still have to pay something. This process typically takes three to five years to complete. Another drawback of filing for Chapter 13 is that the legal fees can be a little higher because it takes longer to set up the payment plan.

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