Five Reasons to Prefer Chapter 13 Bankruptcy Over Chapter 7 Bankruptcy

Are you struggling to pay your bills? Many people and families in San Diego are dealing with similar issues. You may have come around on looking into filing for bankruptcy protection. There are two main types of personal bankruptcy: 

• Chapter 7 Bankruptcy: Chapter 7 bankruptcy, often called “liquidation bankruptcy,” allows individuals or businesses to discharge most unsecured debts by selling non-exempt assets. It is designed for those with limited income who cannot realistically repay their debts. Once the process is complete, the filer is released from most obligations. Though some debts—such as income taxes and student loans—are not dischargeable. 

• Chapter 13 Bankruptcy: Chapter 13 bankruptcy, also known as “reorganization bankruptcy,” enables individuals with a steady income to develop a plan to repay debts over three to five years. Instead of selling assets, the filer makes monthly payments to a court-appointed trustee, who then distributes the funds to creditors. At the end of the repayment plan, any remaining eligible unsecured debts are typically discharged.

Even though Chapter 7 bankruptcy protection clears more debt, Chapter 13 bankruptcy may be the better choice. Here, our San Diego bankruptcy attorney highlights five reasons why Chapter 13 bankruptcy may be a better option to resolve your financial issues than Chapter 13 bankruptcy. 

• You May Only Be Eligible for Chapter 13 Bankruptcy (No Means Test in California)

Not everyone can file for Chapter 7 bankruptcy protection. In California, Chapter 7 bankruptcy requires passing a means test to prove you do not earn enough to repay your debts. If you exceed the income threshold—which you will not if your household-size-adjusted income is above the state median—you may not qualify for Chapter 7. In contrast, Chapter 13 bankruptcy has no means test. In other words, Chapter 13 bankruptcy is available as an option for a broader range of people—including higher earners. For those with a stable income and significant debt, Chapter 13 may be the best path back to financial stability. 

• You Can Keep Virtually All of Your Property When You File for Chapter 13 Bankruptcy

When filing for Chapter 7 bankruptcy protection, some people are required to liquidate their assets. It can be a big deal for people who are financially insolvent, but do have some significant assets. On the other hand, Chapter 13 allows you to retain virtually all your assets, including your home, vehicles, and other personal property. Instead of asset liquidation, Chapter 13 focuses on structured repayment plans that prioritize debt resolution without forfeiting your possessions. This makes it the better choice for those with significant assets they wish to protect. 

• You Can Better Deal With a Potential Mortgage Foreclosure Through Chapter 13

Are you a homeowner in San Diego who is dealing with financial distress? Are you worried about facing a foreclosure? You may not want to file for Chapter 7 bankruptcy protection. Chapter 13 bankruptcy offers unique tools for addressing mortgage arrears and avoiding foreclosure, which Chapter 7 does not provide. Through Chapter 13, you can include missed mortgage payments in your repayment plan and spread them out over three to five years. This allows you to catch up on overdue amounts while keeping your home. In contrast, Chapter 7 may only delay foreclosure temporarily. It does not provide a direct mechanism for resolving past due mortgage payments. 

• You Will Retain More Control Over the Specific Repayment Terms With Chapter 13

With a Chapter 7 bankruptcy filing, the bankruptcy trustee has major control over the process. While your input still matters, your control is far more limited than it is with a Chapter 13 bankruptcy. A top-tier San Diego Chapter 13 bankruptcy lawyer can help you negotiate the specific terms of your repayment plan. Indeed, Chapter 13 bankruptcy gives filers greater flexibility to craft a repayment plan that fits their financial circumstances. Unlike Chapter 7, which requires liquidation according to strict guidelines, Chapter 13 allows you to negotiate with creditors and adjust payment terms to ensure affordability. The control enables you to prioritize certain debts. 

• You Will Do Less Damage to Your Credit With a Chapter 13 Bankruptcy Filing

Once you exit the bankruptcy process, the goal is long-term financial stability. Among other things, that means slowly rebuilding your credit. Chapter 13 generally has a less severe impact on your credit compared to Chapter 7. Further, it will actually be visible on your credit report for less time. The United States Bankruptcy Court for the Central District of California explains that while both bankruptcies remain on your credit report, Chapter 13 stays for seven years. On the other hand, Chapter 7 remains on a person’s credit report for ten years. Beyond that, creditors often view Chapter 13 more favorably because it demonstrates a willingness and ability to make payments.

How Our San Diego Bankruptcy Lawyer Can Help With a Chapter 13 Bankruptcy

Chapter 13 bankruptcy may be the best option for your specific situation if you are struggling with overwhelming debt. As every case is different, it is imperative that you consult with a top-tier legal advocate. Le’Roy Roberson is a San Diego personal bankruptcy lawyer with the skills and legal knowledge to handle Chapter 13 bankruptcy cases. During your free, 30-minute initial phone consultation, Attorney Roberson can help you determine if your best option is Chapter 13 bankruptcy, Chapter 7 bankruptcy, or a non-bankruptcy debt relief alternative. 

Set Up Your Free Initial Consultation With Our San Diego Bankruptcy Attorney Today

At Resolve Law Firm, APC, our San Diego, CA bankruptcy attorney is a skilled, experienced advocate for clients. We are committed to helping people solve problems. If you have any specific questions or concerns about seeking Chapter 13 bankruptcy protection, please do not hesitate to contact us today for your fully confidential, no obligation initial case review. Our law firm provides both Chapter 13 and Chapter 7 bankruptcy protection in San Diego, San Diego County, and beyond.