Why Chapter 7 is More Desireable than Chapter 13

Anyone thinking about filing for bankruptcy has probably heard about chapter 7 and chapter 13. The bankruptcy code is divided into different chapters which offer debtors a choice as to how they want to discharge their debt.  Consumer debtors have just two choices, chapter 7 and chapter 13. 

Chapter 7 is the more desirable of the two.  The reason is very simple: chapter 7 offers the debtor the ability to get rid of his or her debt without having to pay anything back, whereas, chapter 13 allows the debtor to enter into a repayment plan, usually for a term of five years.

What Will be Liquidated?

Chapter 7 is called the “liquidation” chapter.  It gets this name because the trustee in charge of your bankruptcy estate will sell your non-exempt property and then distribute the proceeds to your creditors.  The reality is that only very few debtors own property of any value that the trustee would be able to sell.  Cars are the most likely asset to be liquidated.  In Tampa, Florida, where I practice, the Homestead Exemption protects almost all homes from liquidation.

Chapter 7 is Fast

Another desirable aspect of Chapter 7 is time.  It usually takes a chapter 7 debtor only 120 days from the date of filing to receive his or her discharge.  On the other hand, chapter 13 will usually last five years.

New Laws and Eligibility

Unfortunately for debtors, in 2005 the U.S. Congress buckled under the aggressive lobbying pressure from the credit card industry and passed the Bankruptcy Abuse and Consumer Protection Act (BACPA).  Don't let the title fool you, the new law is not debtor friendly.  In fact, the BACPA created many roadblocks to limit and discourage the filing of chapter 7.  It is for this reason that you should speak to a bankruptcy attorney to determine your chapter 7 eligibility.