Why Is Chapter 7 Bankruptcy More Popular? Learn Your Choices!

When given the choice, debtors mostly prefer filing for Chapter 7 bankruptcy as it discharges most of the debts. A debtor, however, has to qualify Means Test, i.e. he or she must meet an income limitation. An eligible debtor may have most of his debts discharged through nonexempt property liquidation. While you are struggling with unmanageable unsecured debts, losing some of the nonexempt assets to clear off all the dues is actually ‘no loss,’ believed by Recovery Law Group – a trusted consumer protection law firm in Los Angeles. The most common types of bankruptcies filed are Chapter 7 and Chapter 13 bankruptcies. However filing Chapter 7 over Chapter 13 is considered a wiser choice, because:

·         The debtor can start over fresh. The objective of Chapter 7 bankruptcy is to allow the debtor a fresh start. Elimination of some debts sets the defaulter free from personal liability for the cleared debt. There are still certain types of debts that cannot be discharged and these include student loan, alimony and child support, debts incurred through embezzlement and certain taxes. Besides, there are certain property liens, such as mechanic’s lien, mortgage and tax liens, that can never be discharged even after the completion of Chapter 7 bankruptcy case.

·         The debtor gets to keep all his future income. Typically, properties acquired by a debtor after he files Chapter 7 bankruptcy do remain within his possession only, however terms and conditions applied. If the debtor acquires the property within 180 days after filing Chapter 7 bankruptcy, the property falls under bankruptcy estate lawfully. However, this condition applies only if the property is inherited, or is the result of divorce decree, settlement agreement, a life insurance policy proceeds or if it is a death benefit.

·         There are no limitations on the debt amount. Quite unlike the Chapter 13bankruptcy, rules of Chapter 7 bankruptcy do not inflict a limit on the amount of debt the filer may receive. In chapter 13 bankruptcy, debtors are not eligible if debt exceeds the debt limit, irrespective of unsecured or secured debts.

·         There is no repayment plan. In chapter 7 bankruptcy, debtors need not repay any debts using a court-approved repayment plan, but in chapter 13 bankruptcy, they do. In chapter 7 bankruptcy, the debtor is set free from repaying most debts after their discharge in the process, except for certain types of debts.

·         Chapter 7 bankruptcy works faster than chapter 13. Debts are typically discharged within three months. The court issues discharge order within 60 to 90 days after the debtor files bankruptcy.  Once the trustee distributes the nonexempt properties of the debtor to unsecured creditors, the case is closed by the bankruptcy court.

Hence, if you have been wondering whether to file chapter 7 or chapter 13 bankruptcy, despite the Chapter 7 bankruptcy’s more popularity and compatibility, you should always consult an experienced attorney before heading to any decision. Recovery Law Group can be your ideal assistance throughout.