When is Chapter 7 bankruptcy a better option than Chapter 13?

When a person realizes that his or her debt has reached an unmanageable point, it might be time to think about bankruptcy. There are two types of consumer bankruptcy to consider — Chapter 7 and Chapter 13. While a person’s income may dictate which bankruptcy he or she qualifies for, there are times when both forms of bankruptcy are possible.

If an individual in Connecticut meets the income limitation for Chapter 7 bankruptcy, he or she may feel conflicted about how to proceed. Although Chapter 7 discharges most of a person’s debt, the debtor may have to give up valuable property that is not exempt from the process. Chapter 13 allows debtors to keep most property. While Chapter 13 might sound preferable, whether a person is able to keep certain property is not the only factor to think about.

In Chapter 7 bankruptcy, there is no limitation on how much qualifying debt may be discharged. Chapter 13 imposes debt limits on both secured and unsecured debt, and exceeding those limits may render a debtor ineligible for filing. Those who meet the income limitations and have exceedingly large amounts of debt may be better off pursuing Chapter 7 rather than Chapter 13 bankruptcy.

An individual can also expect debt to be discharged much more quickly in Chapter 7. Discharge generally occurs between 60 and 90 days from when the debtor files. Discharge in Chapter 13 usually takes years and only comes after the completion of a repayment plan. How much a debtor must repay is based on the value of nonexempt property a creditor would have received had the person filed for Chapter 7 bankruptcy instead.

Understandably, people usually feel attached to important and valuable property, such as secondary motor vehicles. The ability to keep that property makes some who qualify for Chapter 7 bankruptcy think that Chapter 13 will provide more favorable results. In reality, Connecticut residents who qualify for Chapter 7 are usually better served by pursuing this process.