Considering whether Chapter 7 or Chapter 13 Bankruptcy Fits One’s Goals

Before commencing any discussion of the relative merits of Chapter 7 bankruptcy versus Chapter 13 bankruptcy, it is necessary to underscore how important it is to discuss whether one should file bankruptcy to address financial issues with an experienced bankruptcy attorney and to listen to his or her advice on the best filing option for one’s particular circumstances. Any comparison of the advantages and disadvantages of Chapter 7 cases vis-à-vis Chapter 13 cases only provides a useful framework for weighing different avenues to obtain legal relief from financial difficulty. Consultation with counsel is recommended before a final decision on one’s course is made.

That having been said, one should note that Chapter 7 bankruptcies bear many of the features of liquidation whereas Chapter 13 bankruptcies resemble reorganization for those earning regular income. Chapter 7 actions more frequently wrap up in a matter of months not years, unlike Chapter 13 cases where longer-term plans are devised to pay off creditors over a period of time depending upon the magnitude of the dischargeable debt.  Chapter 13 bankruptcies do have the specific advantage of providing for the opportunity, on one occasion, to stop the foreclosure of one’s house. Chapter 7 bankruptcies may be more attractive to those who face substantial unsecured debts such as credit card arrearages and outstanding medical bills. Below is a non-comprehensive list of some important differences between Chapter 7 and Chapter 13 bankruptcies:

• Qualifications for filing: In Chapter 7s, individuals and businesses can file but disposable income of the debtor must not be too high to flunk a means test that the Court must apply to determine eligibility. With Chapter 13s individuals, including sole proprietors, may file but they must have no more than more than $383,175 of Unsecured Debt or $1,149,525 of Secured Debt to go forward

• Disposition of property: In Chapter 7s, a trustee may sell or liquidate all non-exempt property to pay off creditors whereas, for Chapter 13 debtors they will generally keep their own property but must pay off unsecured creditors in an amount relative to the value of the debtor’s non-exempt assets and available disposable income

• Cramdown Authority: Bankruptcies judges can force the reduction of the amount of principal due on a secured loan in Chapter 13 bankruptcy cases but not Chapter 7 cases

Most generally Chapter 7 bankruptcies afford an opportunity to quickly relieve oneself of most debts but will not stop foreclosures. Chapter 13 cases allow one to hold on to one’s property while continuing to earn income which, in part, will go to rid oneself of accumulated debts.  As indicated above, consultation with a skilled bankruptcy attorney is essential to help determine which path, if any, is best for addressing problems caused by excessive debt.

In Albuquerque, Giddens & Gatton Law, P.C. has attorneys who offer expert handling of Chapter 7, Chapter 11, Chapter 12 and Chapter 13 bankruptcy cases. The firm represents many debtors and creditors in Albuquerque, Santa Fe, Taos, Raton, Farmington, Gallup, Grants, Roswell, Los Lunas, Placitas, Belen and the rest of New Mexico. Contact Giddens & Gatton Law, P.C. at (505) 633-6298 to set up an appointment or visit the firm’s website at giddenslaw.com. Giddens & Gatton Law, P.C. is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico.