Deciding Between Chapter 7 Bankruptcy or Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is better than a Chapter 7. If you are behind in your mortgage payments or your business payments, a Chapter 13 bankruptcy will be your only option. You can also keep your property in California, or elsewhere, after the bankruptcy proceedings end. You can make the overdue mortgage payments clear and reinstate your original mortgage agreement by filing a chapter 13 bankruptcy. In general, if you have valuable property not covered by your California bankruptcy exemptions that you want to keep, a chapter 13 filing may be a better option. Also, people file Chapter 13 bankruptcy because they have too much income to file a Chapter 7 bankruptcy or have the kind of debt that is non-dischargeable in Chapter 7 (e.g. Certain taxes
Chapter 7 is the best option for California residents who want to get rid of their debts without having to pay them back.
You can find out more about the two types of bankruptcy here:
- California Chapter 7 Bankruptcy
- California Chapter 13 Bankruptcy
Here’s a quick overview of both types of bankruptcy.
- Advantages California Chapter 7 Bankruptcy
- Disadvantages California Chapter 7 Bankruptcy
- Advantages of California Chapter 13 Bankruptcy
- Disadvantages of California Chapter 13 Bankruptcy
Benefits of a California Chapter 7 Filing:
- A completely new start is possible. You will have no more debts after bankruptcy.
- On the date you file, you have immediate protection from creditor collection efforts and wage garnishment.
- After the bankruptcy filing, all wages you earn and any property you acquire (except inheritances) are yours and not the creditors or bankruptcy court.
- There is no minimum amount required.
- In about 3 to 6 months, your case will be over.
California Chapter 7 Filings:
- Your non-exempt property is lost and sold by the trustee. If you want to keep a secured asset, such as a car or home, and it is not completely covered by your California bankruptcy exemptions then Chapter 7 is not an option.
- The automatic stay granted by Chapter 7 if you are facing foreclosure on your house is temporary.
- If they do not file for bankruptcy protection, co-signors can remain with your debt.
- You can’t file Chapter 7 bankruptcy if you have filed a previous case and were granted a discharge of your debts. This applies only to cases filed within eight years.
Benefits of a California Chapter 13 Payment Plan:
- You can keep your entire property, exempt or non-exempt if you wish and can afford the payment plan.
- Although debts cannot be canceled as in a Chapter 7 bankruptcy, they can be reduced through a Chapter 13 payment program.
- You are immediately protected against wage garnishment and creditor collection efforts.
- More debts are considered to be dischargeable (including debt you incurred on the basis of fraud and credit card charges for luxury items immediately prior to filing).
- Any co-signers who sign the Chapter 13 plan are exempt from creditors’ efforts if they pay full.
- Your lender can foreclose on your home if you comply with the terms of your plan.
- You have more time to pay debts that can’t be discharged by either chapter (like taxes or back child support).
- Chapter 13 can be filed at any time.
- You can file multiple times.
- Separate your creditors by their class so that different creditors get different amounts of payment. This allows you to deal with debts that have a co-debtor on a different basis from debts you incurred on your own.
California Chapter 13 Payment Plan Disadvantages
- A payment plan is where you use your post-bankruptcy income. This will tie up your cash for the Chapter 13 plan period.
- Because a Chapter 13 filing can be more complicated, legal fees are usually higher.
- Your plan, and thus your debt, will last 3 to 5 years.
- For the term of the plan, you are involved in bankruptcy court proceedings
- Stockbrokers and commodity brokers can’t file Chapter 13 bankruptcy petitions.
This article was written by Alla Tenina. Alla is the best bankruptcy attorney in Los Angeles California, and the founder of Tenina law. She has experience in bankruptcies, real estate planning, and complex tax matters. The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. This website contains links to other third-party websites. Such links are only for the convenience of the reader, user or browser; the ABA and its members do not recommend or endorse the contents of the third-party sites.