Chapter 7 Bankruptcy or Chapter 13 Bankruptcy – Which is Better?

In the grand scheme of things most would consider this a lose/lose situation.  I mean, who really want’s to file for bankruptcy.  No one.  That’s who.  But if you find yourself in the position of needing to file bankruptcy one of the first questions you will likely have is which type or chapter of bankruptcy should you file?

As with most things in the law – it depends.  I can tell you why you should file one chapter of bankruptcy over the other.  I can also tell you which one my clients seem to be happier with.

Which Chapter of Bankruptcy Should You File?

The main two factors that go into your decision on what chapter of bankruptcy to file is how much money you make and what type of debt problems you are dealing with.

First things first.  If you make too much money you will likely not be able to file for a chapter 7 bankruptcy.  So how much is too much?  It depends on the state (and even county) you live in and how many people live in your household.

For example, here in Arizona in Maricopa County if you have a household of four (4) the income limit is $4,982 per month.  Note that I am writing this article in March, 2013 and these number are changed periodically.

This number represents gross income per month.  It is also a little deceiving in that there are dozens of deductions that are permitted if you happen to be above this number in income.

But, if your income is too high – even after all of the deductions, you will likely have to file a chapter 13 bankruptcy.

Now, as to the types of debt problems you have.  If your debt problem is related to your house payment – as in you haven’t made your house payment in some time – then you will likely need to file a chapter 13 bankruptcy because it will allow you up to 5 years to get caught up on those missed house payments.

If your main problem is credit card debt or medical bills, and your income qualifies, then you should likely file a chapter 7 bankruptcy.

Which Chapter of Bankruptcy Will You Be Happier With?

This is really not a fair question.  You should file the chapter of bankruptcy that will help you deal with your debt problems.  If you are on the verge of losing your house to foreclosure, and you want to keep your house, then you should file a chapter 13.  If you are dealing with credit card debts a mile high, you should file chapter 7.

That being said, generally my chapter 7 clients are happier with that process over a chapter 13.  Why?  Because it is shorter.  That is it.  Chapter 7 lasts about 4 to 5 months while a chapter 13 is 3 to 5 years – most of my chapter 13 cases are 5 year cases.

This means that you are dealing with me, the bankruptcy court, and the bankruptcy trustee for a long time.  A lot can happen in 5 years.  Life happens.  And because of that nationwide the overall success rate for chapter 13 cases is surprisingly low.

Chapter 7 bankruptcy is designed to get you, get you out, and on with life.  It comes with the possibility of some pain in the form of loss of assets, and you may have to make the hard decision of whether you should actually stay in your current house or not.  But if your goal is to simply get a mulligan – to start again – chapter 7 may be your best choice.