Is Chapter 7 Bankruptcy Better for Me Than Chapter 13 Bankruptcy?

If you are having difficulty managing your debt and are considering consumer bankruptcy, you may be wondering whether Chapter 7 bankruptcy is better for you than Chapter 13, or vice versa. Many debtors think that it can be possible to choose between Chapter 7 and Chapter 13 bankruptcy, but this is not often the case. A debtor who is eligible for Chapter 7 bankruptcy likely will not be eligible for Chapter 13 bankruptcy, and vice versa. Ultimately, Chapter 7 bankruptcy could better meet your needs than Chapter 13 bankruptcy, but that alone does not mean that you will be eligible to file for Chapter 7 bankruptcy. We will explain more below, but if you have questions, you should get in touch with an experienced Oak Park bankruptcy attorney to discuss your options.

Chapter 7 Being Preferable Does Not Mean That You are Eligible

You might be thinking that you would prefer to file for Chapter 7 bankruptcy because you can receive a discharge of your debts relatively quickly, and you can get a fresh start financially. However, wanting to file for Chapter 7 bankruptcy and being eligible to file for Chapter 7 bankruptcy are two different things.

Even if Chapter 7 bankruptcy seems like the better option for you in terms of your financial needs and your financial recovery, you can only be eligible to file for Chapter 7 bankruptcy as a consumer if you can pass the “means test.” The means test was created with U.S. bankruptcy law reforms back in 2005, and it significantly limits eligibility for Chapter 7 bankruptcy. The idea was that liquidation bankruptcy should only be available to consumers who do not have the steady financial means to repay creditors over time (as in a Chapter 13 case), and for whom a liquidation bankruptcy would not be abusive in relation to the bankruptcy system.

The means test in effect looks at your income and your assets, and if you earn too much money or have certain assets, you will not be able to pass the means test in order to file for Chapter 7 bankruptcy. However, even if you cannot file for Chapter 7 bankruptcy, you could be eligible for Chapter 13 bankruptcy.

Learning About Your Eligibility for Other Types of Bankruptcy Filings

If you want to file for Chapter 7 bankruptcy yet you are ineligible, you could be eligible to file for a reorganization bankruptcy, which is known colloquially as a “wage earner’s plan.” Most individuals who file for reorganization bankruptcies will file under Chapter 13. However, there are certain situations in which a consumer’s amount of secured or unsecured debt is too high for that consumer to be eligible for Chapter 13 bankruptcy. In these situations, the consumer can still be eligible to file for Chapter 11 bankruptcy.

Chapter 11 bankruptcy for consumers is very similar to Chapter 13, but it is more complicated and costs more to file. Accordingly, most debtors seeking a reorganization bankruptcy will choose Chapter 13 when possible over Chapter 11.

Contact a Bankruptcy Lawyer in Oak Park

If you need more information about consumer bankruptcy, one of our Oak Park bankruptcy attorneys can assist you. Contact the Emerson Law Firm today.


See Related Blog Posts:
Federal Crackdown on Abusive Debt Collection
Why Was My Bankruptcy Discharge Denied?

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