Chapter 7 Bankruptcy or
Chapter 13 Bankruptcy - which one is for me?
If you are an individual (including most small business owners), you only have two choices: Chapter 7 or Chapter 13. So, which one is for me?
After many years of combined experience watching cases wind their way through the system, a rough estimate is that 20% of the people filing have a borderline case when it comes to this question. That is, our advice to you as your attorney changes after we get a full and thorough look at your circumstances. After reviewing all your documents, determining the value of a piece of property, or doing case research, we may decide that the other chapter is slightly easier or more beneficial given some new information.
Many cases can be given a good estimate up front and many are amenable to more indepth analysis. It is also important to note that we don't take a "cookie cutter" approach to getting you the most out of the process.
You can give yourself a heads up now: take a look at the "means test" as it will give you an idea of whether or not you have to file Chapter 13, as opposed to being able to choose. (It is usually more advantageous to file in Chapter 7, but not in 15-20% where Chapter 13 is actually better given the circumstances of the debtor. In the majority of cases, creditors are better off if you file Chapter 13.)
It used to be that those with a substantial amount of equity in their home could choose Chapter 13. Or, if you had enough income so that there was a large disposable amount, you would have to use Chapter 13. Under the new means test, many people are forced into Chapter 13.(ALERT: learn more about new Washington State Homestead Exemption for Bankruptcy cases)
In a nutshell, Chapter 7 will wipe out virtually all debts in their entirety - 100% gone! (Exceptions include such things as student loans and taxes.)
With Chapter 13, you go on a payment plan and only a percentage of your debts are wiped out over time. With Chapter 13, it is much like the court saying:
"OK, you can wipe out 60% of all these credit cards and bills, but only on the condition that you make a set monthly payment towards the other 40%; and, if you fail to stick with this court ordered payment plan, the full 100% will bounce back on you."