Over 70% of all consumer bankruptcy cases are filed under Chapter 7 of the Bankruptcy Code. While "going along with the crowd" is not a good reason to file Chapter 7, there are good reasons to choose Chapter 7 over Chapter 13 (assuming the option is available after completing the bankruptcy Means Test). Below are five common reasons why bankruptcy debtors choose Chapter 7:
Reason 1: File Chapter 7 when there is no good reason to file Chapter 13
Chapter 13 contains very useful and powerful tools that can save property (like a house or a car), strip-off an unsecured second mortgage, or can even keep the IRS off your back. When there are no assets at risk, and the debtor does not need on-going court protection, there may not be a good reason to file Chapter 13.
Reason 2: Chapter 7 is quicker
Most Chapter 7 bankruptcy cases will close between three to five months. Chapter 13 cases run three to five years.
Reason 3: There is no repayment plan in Chapter 7
The Chapter 13 debtor proposes a plan to repay his creditors. The debtor pays what he can to his creditors over three to five years. In a typical Chapter 7 case, unsecured creditors receive nothing and most debts that you cannot afford to keep are discharged at the end of the case (with a few exceptions). Secured property is either surrendered back to the creditor, or the debtor reaffirms the debt and continues to pay just as he or she did prior to the bankruptcy.
Reason 4: There is no extra income to pay creditors
Chapter 7 is generally not available where the debtor's income exceeds his state's median income (for a household of the same size), and demonstrates an ability to repay his creditors (as is established after completing the bankruptcy Means Test). When there is no extra money to pay creditors, it may make more sense to "start fresh" with a quick bankruptcy discharge in a Chapter 7.
Reason 5: It costs less to file Chapter 13
The typical Chapter 7 "no-asset" case is simple and straight-forward. Chapter 7 is completed within about three to four months. The typical Chapter 13 case involves the repayment of a debt or debts over three to five years. Consequently, attorneys charge more for Chapter 13 cases because of this increased time frame of representation.
If you have financial problems that won't go away, speak with an experienced attorney and consider your options under the federal Bankruptcy Code. An experienced bankruptcy attorney can explain the benefits of Chapter 7 and Chapter 13, and help you develop a plan to solve your financial dilemma.
Contact the experienced Chicago bankruptcy attorneys at Glanzer & Angres, P.C. at 1-877-337-2227 to discuss your specific situation, and to schedule your free, in-person consultation.