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When should you file for Chapter 7 bankruptcy over Chapter 13?

Dealing with financial problems is anything but easy. While these times can be minor, other individuals and families in California are dealing with the devastating reality of increasing debt problems. In order to keep their head above water and avoid the risk of losing their home and other assets and property, seeking debt relief is the best option. This can come in various forms, but the two most common ways for a consumer to address their debts is by filing for a Chapter 7 or Chapter 13 bankruptcy.

When should you file for Chapter 7 bankruptcy over Chapter 13? To answer this, one must first understand the differences between these two types of bankruptcies. A Chapter 7 bankruptcy is a mechanism to wipe away all of a consumer's dischargeable debts once the process is finalized. Thus, an individual must be aware what is considered to be dischargeable debts and what is not. For example, student loans are not dischargeable. Additionally, debts due to fraud and other violations are not dischargeable.

On the other hand, a Chapter 13 bankruptcy is used to reorganize debts into manageable monthly payments. This payment plan is based on the income of the debtor. This process also stops the harassment of debt collectors. Additionally, debts that typically accrue interests will stop accruing interests, requiring you to pay off this debt over the course of several years.

For those making a decent income will likely have to file for Chapter 13; however, those that are unemployed or make too little money will qualify for a Chapter 7 bankruptcy. However, it is important to note that if you own a lot of property, the Chapter 7 process might require you to sell some of it, giving the proceeds to your creditors. But a bankruptcy trustee is not allowed to touch certain properties. This includes clothes, furniture and household goods not exceeding a total of $12,625, equipment needed for work not exceeding $2,375, one vehicle, jewelry not exceeding $1,600 and your homestead.

No matter what bankruptcy process you decide to file for, it is not an easy process to initiate. It is, however, an often necessary step to take. Bankruptcy can provide real options and a fresh financial start for those struggling with debt.

Source:, "When to File for Bankruptcy Chapter 7 or Chapter 13," Dec. 11, 2016

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Thomas F. Miles, Attorney and Counselor at Law
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