Which Type of Bankruptcy Case Should I File?

by Johnny Tisdale on November 19, 2012

Choosing the right chapter of the Bankruptcy Code under which to file your case is a complex matter. The specific details of your situation must be considered. I offer general guidelines to simplify this process. But in the end you may need the help of an experienced bankruptcy attorney.

The Different Kinds of Bankruptcy

Consumers can only file under Chapters 7, 11, and 13 of the Bankruptcy Code. Chapter 11 deals more with business bankruptcy than personal bankruptcy; it is rare for a consumer to file under this chapter. We will focus on Chapter 7 and Chapter 13.

The most common type of bankruptcy case is a Chapter 7 bankruptcy (or "straight" bankruptcy). Your property is taken and sold to pay off as much of your debt as possible. Finally, most of your remaining debt is wiped out.

The other chapter under which a consumer is likely to file a bankruptcy case is Chapter 13. In this kind of bankruptcy, you get to keep all of your property (with some exceptions). You repay a portion of your debt over three to five years.

Advantages of a Chapter 7 Bankruptcy Case

Are you a low-income debtor? Do you seek a quick and easy way to free yourself from debt? If so, then Chapter 7 is likely the right choice for you. Depending on what state you live in, all of your property will be exempt, so you get to keep it. Most of your debt will be wiped out. You get a fresh start in life, although you may be subject to higher interest rates — on credit cards, for example. The entire process takes only about three months. Generally it requires only a single, out-of-court meeting with the trustee overseeing your case.

Advantages of a Chapter 13 Bankruptcy Case

Chapter 13 is the right choice if you have nonexempt property that you want to keep. Your property will remain in your hands, although its value may be added to the amount that you have to pay back.

If a secured creditor is threatening to seize your property, then Chapter 13 is probably the right choice. For example, if a bank is about to repossess your car, a Chapter 13 bankruptcy is probably the quickest way to prevent that from happening.

In a Chapter 13 bankruptcy, you enter into a repayment plan approved by the court. Depending on your income, you repay a portion of your debt over three to five years. Most people do not have to pay back 100% of what they owe.

You have the right to dismiss your case under Chapter 13.

A discharge under Chapter 13 wipes out some kinds of debt that are not dischargeable under Chapter 7.

Dealing with Changes after Filing

You have the right to convert your case from one kind to the other at least once. For example, suppose that you file for a Chapter 7 bankruptcy but then realize that you have nonexempt property. This property has great sentimental value and you want to keep it. You have the right to convert your case to a Chapter 13 if you have enough income for a repayment plan. Then you get to keep the property.

What if your situation changes while you are repaying your creditors under a Chapter 13 repayment plan? Suppose that you lose your job or incur a large medical expense. As long as you are honestly adhering to the plan, the trustee will probably help you through these hard times. You may be granted a grace period, be given an extension, or have your monthly payments reduced.

Making the Right Choice

Although you are allowed to convert your case at least once, you obviously want to make the right choice in the end. Whether you are even eligible for a Chapter 7 bankruptcy depends on whether you pass the "means test," which is quite complicated. In short, having an experienced bankruptcy attorney on your side makes the whole process go much smoother. Please call us at 510-233-7700 to schedule your free consultation. We can help you decide which chapter to file under and prepare all of the necessary paperwork for the court.

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Johnny Tisdale

Paralegal at Dowe Law Firm
Johnny Tisdale is a paralegal, web designer, and writer at the Dowe Law Firm. He earned his BS in psychology and ABA-approved paralegal certificate from Auburn University Montgomery in 2011.

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