Chapter 7 vs. Chapter 13
Most experienced attorneys can prepare a simple Chapter 7, but few can prepare a Chapter 13 proceeding. Be careful, because in many cases, a Chapter 13 is far more beneficial for you than a Chapter 7, but some attorneys (who can't do Chapter 13) will only advise that you do Chapter 7. This may result in loss of your house, inability to eliminate large amounts of second mortgage debt (only available in Chapter 13), and loss of business or other assets.
Inability to prepare a Chapter 13, and therefore putting clients in a simple Chapter 7, can be considered malpractice and can be extremely damaging to the client. ASK YOUR ATTORNEY IF HE OR SHE CAN DO A CHAPTER 13 AND HOW MANY HAVE BEEN DONE! ASK YOUR ATTORNEY TO CLEARLY EXPLAIN THE DIFFERENCES SO THAT YOU FEEL COMFORTABLE YOU ARE GETTING INTO THE RIGHT CHAPTER.
Chapter 7 is the simple basic bankruptcy used for eliminating unsecured credit card debt or eliminating real estate debt to be surrendered. In addition, certain taxes, medical bills, lawsuits, judgments, and repossessions can be eliminated. REMEMBER, YOU HAVE TO QUALIFY UNDER THE MEANS TEST and provide other evidence to the court.
Chapter 13 is the more sophisticated proceeding, which allows you to repay what you can afford, regardless of how much you owe. In many Chapter 13's you can eliminate more debt than in a Chapter 7! Chapter 13 is used to help keep houses by eliminating second mortgages (lien strips) and restructuring delinquent first mortgage debt. You will have FIVE years to bring yourself current on back house payments! It is also appropriate for small businesses to trim off secured, unsecured, and tax debt. Remember the GMAC bankruptcy? This was Chapter 11, similar to Chapter 13, and it allowed GMAC, and many other businesses, to become profitable. Chapter 13's are also used to stop interest and penalties on tax obligations with up to five years to repay those taxes which cannot be eliminated. Autos and other vehicles can also be paid at lower payments at 5% interest.
With today's economy, Chapter 13's have become the more creative Chapter, saving homes and businesses and eliminating more debt than a Chapter 7.