Which is better, a Chapter 13 Bankruptcy or a Chapter 7 Bankruptcy? Honestly, the answer is it depends! Sometimes, you don’t have much of a choice in the matter. As a general rule, if you have the ability to pay back some of your debt you are expected to do so. That means a Chapter 13 Bankruptcy. If you don’t have the ability to pay back your creditors, than maybe we think about a Chapter 7 Bankruptcy. I wish the world was always that simple. Unfortunately, it is not.
From a pure credit worthiness standpoint, in my opinion filing a Chapter 7 Bankruptcy is much better than a Chapter 13 (where you make payments back to your creditors). Now I know this sounds a bit crazy, but hang with me for a moment. If I am a future lender, would I prefer to see you apply for a loan with me in the middle of a Chapter 13 Bankruptcy where you still are technically legally liable for the debt or would I prefer to see you after a Chapter 7 Bankruptcy discharge where your liability for the debt is gone? After a 7 right? Of course! If you have no debt, I am more assured you will pay me back!
But there are reasons to consider a Chapter 13 Bankruptcy. Income is one of them. If you make a lot of money and have disposable income (money left over after you pay your reasonable and necessary expenses) you must do a Chapter 13 Bankruptcy. There are many other reasons to consider a Chapter 13 Bankruptcy too: mortgage arrears, delinquent vehicle payments, taxes, possession of non-exempt assets, etc. Everyone’s situation is so unique and different remedies are suited for different situations.
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