Pros and Cons to Chapter 7 and Chapter 13 Filings
Advantages to a Chapter 7 Bankruptcy Filing
(1) The amount of debt you can erase is not limited.
(2) Unpaid balances due after assets are distributed are erased ("discharged" in bankruptcy language).
(3) Wages you earn and property you acquire (except for inheritances) after the bankruptcy filing date are yours, not the creditors or bankruptcy court.
(4) There is no minimum amount of debt required.
(5) Your case is often over in about 3-6 months, enabling you to get out from under the burden of debt quicker.
Disadvantages to a Chapter 7 Bankruptcy Filing
(1) You lose your non-exempt property which is sold by the trustee.
(2) Some debts survive and can be collected after your case is closed (e.g., mortgage liens).
(3) If facing foreclosure on your home, lender's efforts are only temporarily stalled by filing.
(4) Co-signors of a loan can be stuck with your debt unless they file for similar protection.
(5) You can file this type of bankruptcy only once every eight years.
(5) Bankruptcy damages your credit rating.
(6) It is difficult to withdraw from a Chapter 7 filing.
Advantages to a Chapter 13 Payment Plan
(1) You keep all your property, exempt and non-exempt.
(2) You have a longer period of time to pay the debt.
(3) The debts that are not canceled in a Chapter 7 discharge can be reduced in a Chapter 13 payment.
(4) You have protection against creditor's collection efforts and wage garnishment.
(5) Any co-signers are immune from the creditor’s efforts so long as the Chapter 13 plan provides for full payment.
(6) You have protection against foreclosure by your lender of your home.
(7) You can file a Chapter 13 after your Chapter 7 discharge to pay off any remaining liens.
(8) You can file repeatedly.
(9) You can separate your creditors by class. Different classes of creditors receive different percentages of payment. This enables you to treat debts where there is a co-debtor involved on a different basis than debts incurred on your own.
Disadvantages to a Chapter 13 Payment Plan
(1) You pay your debts out of your disposable (post-bankruptcy) income. This ties up your cash over the repayment period.
(2) Some debts will survive after your bankruptcy is closed and you must continue paying.
(3) Legal fees are higher since a Chapter 13 filing is more complex.
(4) Your debt must be under $1,532,700 (e.g., unsecured debts are less than $383,175 and secured debts less than $1,149,525). These amounts are adjusted every three years; the next adjustment period is April 1, 2016.
(5) Your debt can linger for years, burdening future income.
(6) Stockbrokers, and commodity brokers cannot file a Chapter 13 bankruptcy petition.