If you are a California resident and you need to file bankruptcy, there are two kinds that most consumers usually choose: Chapter 13 and Chapter 7 (Chapter 11 is usually for corporations, but can at times be used for individuals). Many consumer bankruptcy attorneys in San Diego will do both 7s and 13s, but many won’t explain to you the benefits of both, particularly Chapter 13.

The Differences

Chapter 7 bankruptcy allows you to completely discharge (wipe out, eliminate, etc) your debts without paying anything. Chapter 13 will obligate you to a monthly payment plan to pay a fraction of your total debts over the course of what is usually a five-year period.

So, assuming a consumer has a choice, why would someone choose Chapter 13 over Chapter 7? Why make any payments when under a 7, you don’t need to make any?

Advantages of a 13

The answer is that Chapter 13 has a few advantages that Chapter 7 doesn’t offer. These include:

_MG_2061Saving Homes in Foreclosure: In some cases, a debtor can pay off the arrearages owed to a mortgage company through a Chapter 13 plan, and when it is done, be considered current, and thus, out of foreclosure. He or she may be able to completely eliminate (“strip off”) second liens that are completely unsecured.

Saving Personal Property: If a debtor has property of value that would otherwise be taken by a trustee in a Chapter 7 (cars with equity, valuable collections, business property, etc.), that property can be retained in a Chapter 13. Chapter 13 is great for debtors who may have items of value they don’t want to lose.

No Income (or “means”) Test: If you make too much for a Chapter 7, you can still file Chapter 13 bankruptcy. Thus, a 13 allows you to manage debt and eventually discharge it, regardless of income.

Payment of Taxes: Except in limited circumstances, income taxes are not dischargeable in a Chapter 7. However, in a Chapter 13, you can repay those non-dischargeable taxes, in a way that’s more manageable than what you may be able to work out with the IRS on your own.

Student Loans, Child Support Arrears: Neither can be discharged in a 7. While they can’t be discharged in a 13, either, you can get them into your affordable monthly 13 payment, so that you are current when the 13 is over. This often results in much better payment plans than you would get outside of bankruptcy.

Repossessions: In some cases, you may be able to reclaim property that was repossessed before you filed the Chapter 13, which cannot be done in a 7.

Your Options May Vary

In some cases, you may not have the option of a 7 or a 13 because your income or situation disqualifies you. However, many consumers do qualify for both. If that is you, don’t be afraid of Chapter 13 payments or the length of the plan. Chapter 13 could have some big benefits for you that Chapter 7 won’t offer.

There are a lot of options when it comes to bankruptcy. Let experienced San Diego bankruptcy attorneys evaluate your financial picture to see what route is best for you. Contact the Bankruptcy Law Center for a free consultation today.