Bankruptcy Chapter Choices

Bankruptcy Chapter Choices

You have a choice in what chapter bankruptcy to file

When a person decides that they need to file a bankruptcy case to solve their financial difficulties, that person faces another choice: what bankruptcy chapter should be used?

Most people with consumer debt elect to file either a chapter 7 or chapter 13 bankruptcy case. Chapter 7 is a liquidation approach to bankruptcy. A chapter 7 debtor’s debts are discharged and a chapter 7 trustee acts as a case manager to collect non-exempt (unprotected) assets and avoid certain payments made to creditors, or property transfers made to third parties in advance of the case being filed. Chapter 7 is the most commonly-used consumer debt chapter, since most bankruptcy debtors do not own non-exempt assets and have not engaged in the kind of payments or property transfers that can be avoided by trustees. Chapter 7 bankruptcy cases work well for people who have problems with unsecured debt, such as high credit card balances and high medical bills.

Chapter 13 is a repayment plan. Chapter 13 plans last for a minimum of 36 months (three years) up to a maximum of 60 months (five years). The chapter13 debtor makes payments every month to a chapter 13 trustee, who in turn pays creditors in accordance with the court-confirmed chapter 13 plan. The chapter 13 payment is based on what a debtor can afford to pay – the plan payments are based on a budget that is put together by the chapter 13 debtor. Chapter 13 plans work well for people who have fallen behind on home mortgage or car payments – chapter 13 gives people a way to catch up on payments so that they can keep their house and car away from foreclosure or repossession. Chapter 13 is also a useful tool for people who owe back taxes or child support – the kinds of debt that is not easily discharged in a chapter 7 case.

What chapter is the best chapter to file? That’s a decision that is best made by a client with the advice of an experienced bankruptcy attorney, like the attorneys at Kain + Henehan. Visit our website: to find out more.

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