Why file Chapter 7 is you are still left with debt?

[susan1215]

I don't understand what the advantage is to file chapter 7. Don't you still have to to pay the debts off? Is the advantage being able to keep your car and house? Does any debt get written off or is it just a way to combine your debts into a monthly pay off? It seems to me filing Chapter 13 gives people more of a fresh start.

[getouttadebt]

It is actually the opposite of what you describe. In Ch. 7, pretty much all debts are discharged. There are a few classifications of debt that are not dischargeable.

Ch. 13 is a payment plan over 3 or 5 years depending on your situation.

BK is not right for everyone. If you have let's say $100k in debt and you can get a full discharge in Ch. 7, then you are essentially receiving a clean slate.

Let's say you have that same $100k in debt, but you are forced into a Ch. 13. Depending on how much disposable income you are ruled to have each month, you could be paying back close to 100% of that amount. I would guess most people that have to go with Ch. 13 probably end up paying back 30-50% over 5 years....and this is just a guess.

So, Ch. 7 is really what you want if you are looking for a fresh start. Of course, there are stricter qualifications since the 2005 overhaul.

Good luck,
getouttadebt

[JollyGG]

Chapter 7 is, of course, the type of bankrupty that gives you the quickest fresh start. You file and four months later all your dischargable debt is gone.

However, chapter 13 has it's advantages as well. There are income guidelines as to who can file a chapter 7. Those people who cannot qualify for a chapter 7 can still get their debts discharged. They do have to pay their disposable income for five years, but that is not neccessarily the whole amount they owe. I have seen some chapter 13's with as little as 1% payback to nonsecured creditors (usually because they have a large amount owed to secured creditors). At the end of the five years any remaining unpaid amounts are discharged. Chapter 13 also lets you hold onto assets that either are behind in payments or have significant equity. Additionally, Chapter 13 makes your creditors follow certain rules. That means that even someone who ends up paying back 100% of their debt may find some advantage in a chapter 13.

So basically, if someone qualifies for a chapter 7, chapter 7 is definately the way to go. If you don't qualify for a chapter 7, if you are trying to save an asset you are behind on payments on, if you are trying to save an asset with equity, or if you the only way to pay your debts is to have the courts set a length of repayment and an interest rate then chapter 13 is a viable option.

[PaKettle]

I think you are confused about bankruptcy and should read more about it.
Try reading some of the Stickies that appear at the top of these forums so you get a feel for what the difference between Ch. 7 and Ch. 13 is.

Basically Ch. 7 can discharge ALL your debts - except for taxes owed, alimony, or student loans - there may be others as well but those are the most common undischargeable debts.

All credit cards and bank loans and retail credit owed is usually discharged so you owe nothing in a Ch. 7. You can also often keep your home and a car in Ch. 7.

But Ch. 13 is when you have some disposable income and so the Trustee decides you can afford to pay towards your debts. So he gives you a payment plan which is usually 3-5 years and leaves you with not much leftover for recreation or luxury spending but after that length of time your debts are all discharged - so you end up paying maybe 1/3 or 1/2 of what you owe over those 3-5 years...

Most would agree that Ch. 7 is way better if you can qualify, which means you take what they call the Means Test and see how you come out on it. Usually, if after paying all rent and utilities, reasonable car payment, etc. you have little or no money left over to pay anything else, you qualify for Ch. 7.