Chapter 7 Bankruptcy vs. Chapter 13

Bankruptcy provides a debtor certain protections during his or her elimination process, however there are two types of bankruptcy that a debtor can choose to file each having their own benefits and detriments. There is no one right answer to determine whether Chapter 7 or Chapter 13 is better because the decision to file different chapters of bankruptcy are made on a case by case basis.

Benefits of Filing Bankruptcy in General:
The filing of any type of bankruptcy will bring into affect the automatic stay. The automatic stay is like a shield that prevents or stops any further actions against the debtor until the bankruptcy is over. The automatic stay will prevent any lawsuits, freeze any current lawsuits, unfreeze bank account, as well as undo wage garnishments.

Benefits of Filing a Chapter 7 Bankruptcy in Florida:
A Chapter 7 bankruptcy is often the best choice for individuals who are currently facing a severe financial hardship. A Chapter 7 bankruptcy allows the debtor to eliminate his or her debts within a 90 to 100 days. The debtor will be allowed to eliminate medical bills, payday loans, utility bills, unsecured loans, repossession debt, foreclosure debt, or basically any other unsecured debt that he or she may have.

Chapter 7 bankruptcy will not be beneficial for a debtor who has lots of assets (cars, bank accounts, investment accounts, jewelry, etc.), because under Florida law a debtor who files for Chapter 7 bankruptcy is limited to the amount of assets he or she may keep. If the debtor is well over the allowed asset protection, then he or she will likely have to forfeit some of their assets in order to eliminate their debt liabilities.

The filing of a Chapter 7 bankruptcy will NOT eliminate a second mortgage or a home equity line of credit on real estate unless the debtor surrenders the real estate entirely. The process known as lien stripping or wiping out second mortgages/home equity lines is a process only applicable in a Chapter 13 bankruptcy.

Finally there are certain financial tests that will determine whether or not the debtor will be allowed to file a Chapter 7 bankruptcy.

Benefits of Filing a Chapter 13 Bankruptcy in Florida:
A Chapter 13 bankruptcy is often to the best option for debtors who have lots of assets or who have multiple mortgages on their home. Unlike a Chapter 7 bankruptcy, in a Chapter 13 bankruptcy a debtor will be allowed to retain most or all of his or her assets (if certain conditions are met). Furthermore a debtor who has fallen behind on his or her mortgage, car payment, or any other type of secured debt can play catch-up in their Chapter 13 bankruptcy.

The Chapter 13 bankruptcy requires the debtor to file a plan whereby the debtor will make a monthly repayment on the debt owed for a period of either three or five years. At the end of the three or five year plan the debtor’s debts will be wiped out.

One of the best benefits of a Chapter 13 bankruptcy is the ability for a debtor to strip or wipeout a second mortgage or a home equity line of credit on real estate. If the debtor can show that the value of the first mortgage is greater than the value of the real estate then all subsequent mortgages or equity lines can be stripped or wiped out.

Whether you are looking to file for Chapter 7 bankruptcy or Chapter 13 bankruptcy, Shmucher Law PL can help. For a free consultation, please call our office by dialing 305.741.5553 or 954.309.5559.

Shmucher Law, PL, a bankruptcy law firm, represents debtors, creditors, and trustees in bankruptcy matters throughout Broward and Miami-Dade counties.

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