When you’re buried under debt, filing for bankruptcy might be the lifeline you need. But figuring out which type of bankruptcy to file can be confusing, especially if you’ve never had to navigate this kind of situation before.
Both Chapter 7 and Chapter 13 bankruptcy offer forms of relief, but they work very differently. And while Chapter 7 is often seen as the quicker, more straightforward option, there are plenty of situations where Chapter 13 can actually be the better choice.
So how do you know when Chapter 13 bankruptcy is the smarter move? Let’s walk through some of the things you’ll need to think about.
Chapter 13 Lets You Keep More of What You Own
One of the biggest advantages of Chapter 13 is that you don’t have to worry about losing your assets. Unlike Chapter 7, which may require the liquidation of certain non-exempt property, Chapter 13 allows you to keep your house, car, and other valuable assets – as long as you stick to your court-approved repayment plan.
If you’ve fallen behind on your mortgage or car payments but want to keep those things, Chapter 13 gives you the chance to catch up over time. That’s something Chapter 7 can’t always do.
It’s especially helpful if you’re in a situation where foreclosure is looming or your vehicle is at risk of repossession. Filing Chapter 13 can put those actions on pause and give you a structured way to regain control.
You Can Catch Up on Back Payments
Chapter 13 allows you to consolidate your past-due amounts into a manageable monthly repayment plan. This means that if you’re behind on your mortgage, car loan, or even child support, you won’t lose your assets immediately. Instead, you’ll have three to five years to bring those payments current while keeping the asset in question.
“In many cases, Chapter 13 provides an even broader discharge than Chapter 7 because we can include a larger variety of categories of debt,” Reed Law Firm, P.A. explains. “The repayment plan can include taxes, car payments, mortgage arrearage, child support arrearage and more.”
That flexibility makes Chapter 13 an attractive option for people who have multiple types of debt that can’t easily be wiped out in Chapter 7.
It Helps With Debt That Chapter 7 Doesn’t Discharge
Not all debt is created equal. And it’s worth pointing out that Chapter 7 doesn’t eliminate everything. Certain obligations, like back taxes, student loans, and child support arrears typically aren’t discharged in Chapter 7. But Chapter 13 gives you a legal mechanism to manage these types of debts more affordably.
For example, if you owe the IRS and currently have no way to pay it off, Chapter 13 allows you to include that debt in your repayment plan. You can satisfy your tax obligations over time without being hounded by collections or wage garnishments.
You Can Stop Foreclosure or Repossession
One of the more valuable features of Chapter 13 is the automatic stay. This provision puts an immediate stop to foreclosure, repossession, and most forms of debt collection as soon as your case is filed.
In a Chapter 7 filing, this stay is temporary – and may not prevent you from losing your home or car if you’re already behind. But Chapter 13 gives you a way to actually catch up on those payments over time, giving you a realistic path to save your assets.
Is Chapter 13 Always Better?
While we’ve spent this article focusing on the advantages of Chapter 13, it’s important to note that it’s not always the best choice for everyone.
If your income is limited, your assets are minimal, and most of your debt is unsecured (like credit card or medical debt), Chapter 7 might give you a faster and more complete discharge. You can walk away from most of your debt in just a few months and move on with your life.
Chapter 13, on the other hand, requires consistent payments for three to five years. That’s a long commitment – and if your income fluctuates or your circumstances change, it can be difficult to stay on track.
The simplest explanation is that Chapter 7 is about erasing debt, while Chapter 13 is about managing it.
The Bottom Line
Bankruptcy isn’t one-size-fits-all. It’s about choosing the tool that fits your needs, your goals, and your financial reality.
Chapter 13 can be the superior option if you have significant assets to protect, back payments to catch up on, or non-dischargeable debts that Chapter 7 won’t touch. It gives you time, structure, and a path forward without losing everything in the process.
But if you don’t have a lot of property or income – and your main goal is to discharge as much unsecured debt as possible – Chapter 7 might be the more practical option.
Before you make any decisions, talk to a qualified bankruptcy attorney who can help you understand the full implications of each path.
Image Source: BigStockPhoto.com (Licensed)
Related Categories: Money, Reviews
