Why would a debtor choose Chapter 13 over Chapter 7?
Chapter 13 is the preferred choice for a person who wishes to repay most or all of his or her unsecured debts, and whose income is sufficient to allow him or her to do so in a reasonable amount of time. In addition, if the debtor has a considerable amount of nonexempt property, or a lot of valuable exempt property used as security for debts, this property could be lost in a Chapter 7 case, and so Chapter 13 may be the preferred option. Some other types of debtors, whose debts might not be discharged under Chapter 7 and those with one or more large debts that may be discharged only under Chapter 13, might opt for Chapter 13 over Chapter 7.
Chapter 13 is the preferred choice for a person who wishes to repay most or all of his or her unsecured debts, and whose income is sufficient to allow him or her to do so in a reasonable amount of time. In addition, if the debtor has a considerable amount of non-exempt property, or a lot of valuable exempt property used as security for debts, this property could be lost in a Chapter 7 case, and so a Chapter 13 may be the preferred option. Some other types of debtors who might opt for Chapter 13 over Chapter 7 are those whose debts might not be discharged under Chapter 7, and those with one or more large debts that may be discharged only under Chapter 13. Beginning in 2005 debtors must qualify for Chapter 7 by a financial means test, so that will be a factor that could loom large for many potential debtors facing this choice.
Chapter 13 is the preferred choice for a person who wishes to repay most or all of his or her unsecured debts, and whose income is sufficient to allow him or her to do so in a reasonable amount of time. In addition, if the debtor has a considerable amount of nonexempt property, or a lot of valuable exempt property used as security for debts, this property could be lost in a Chapter 7 case, and so Chapter 13 may be the preferred option. Some other types of debtors, whose debts might not be discharged under Chapter 7 and those with one or more large debts that may be discharged only under Chapter 13, might opt for Chapter 13 over Chapter 7.
The primary reasons include: the debtor owns nonexempt property that the debtor would like to retain but could not in chapter 7; a debtor is behind on car or house payments and needs to cure the arrearages over time; a debtor seeks to “strip-down” the amount of a secured debt to the value of the collateral (not available as to first mortgages on a debtor’s residence); the debtor has received a prior bankruptcy discharge within 6 years; the debtor has debts that are not dischargeable in chapter 7 (e.g. certain taxes, fraud, defalcation of fiduciary duty, or willful and malicious injury); a debtor is seeking to protect a co-debtor; or a debtor likely has need of bankruptcy relief in the future. In some cases, a debtor with a high income and an ability to repay debts over a period of time, may be not be permitted a discharge in chapter 7 and therefore chapter 13 will be his only option.
Related Questions
- Why would a debtor choose to pay creditors something in a Chapter 13 proceeding rather than get discharged outright in a Chapter 7 proceeding?
- Once a chapter 7 or chapter 13 case is completed, are there other requirements before a debtor receives a discharge?
- Why would a debtor choose to file chapter 13 over chapter 7?
