Chapter 7 Vs Chapter 13

A lot of people are familiar with a Chapter 7 and usually go to an attorney requesting their Chapter of preference.  Many people prefer a Chapter 7 because it is quick and relatively simple.  All of the unsecured debt is discharged in approximately 90 days.  You can also surrender your interest in secured property like a car or a home.  But the real question you should ask you attorney is about the additional debt that you can cram down, strip or challenge.

In a Chapter 13 you can propose a relatively modest repayment to your unsecured creditors such as 2-3% repayment .  You could probably schedule a 2-3 % repayment because as we discussed, you financially (income to expenses) qualify for a Chapter 7.  While in a Chapter 13 you may possibly qualify for stripping off the second mortgage on your home if your property is underwater.  Suddenly, you have reduced a secured debt to an unsecured debt and will have a possible equity interest in your home in 5 years.  You can also cram down the value of your car.  Let’s say you purchased your car in 2007 and promised to pay $35,000 ( including financing and tax).  Today the car is only valued at $9,000.  In a Chapter 13, you can require the creditors to accept payments of $9,000 on your car instead of $35,000.  Again you have increased your equity interest in five years in your car and increased the amount of debt that you can discharge.  You can also look to Chapter 13 to help with student loans by discharging them or  paying less over the five year period.

So do not  sell yourself short by thinking quick and easy such as a Chapter 7.  It may be more beneficial to invest five years in a repayment plan and reduced your secured debt and increase your equity.