SHOULD I FILE A "STRAIGHT" BANKRUPTCY OR A "WAGE-EARNER"?
If nonbankruptcy alternatives are not feasible (or desired), most debtors must choose between a proceeding under chapter 7 of the Bankruptcy Code ("straight" bankruptcy) or a debt reorganization proceeding under chapter 13 of the Bankruptcy Code ("wage-earner").
The following factors should be considered in determining whether chapter 7 ("straight") or chapter 13 ("wage-earner") is more appropriate for the debtor:
1. The dischargeability of debts.
Some debts are nondischargeable under chapter 7 (child support, most taxes, most student loans, etc.) but could be paid back through a chapter 13 plan. Also, a person who has received a chapter 7 discharge of debts in the last 8 years is not eligible for a chapter 7 discharge, but may be eligible for a chapter 13 discharge.
2. Keeping secured property.
A person who is in default (or behind) on a secured debt, such as a house note or car loan, is usually permitted to cure the default within a reasonable time under chapter 13 and keep the property.
3. Keeping nonexempt assets.
In a chapter 7 case, the debtor may have to turn over all nonexempt property (real and/or personal property of the debtor that is not protected by bankruptcy exemption statutes) to the case trustee. In a chapter 13 case, the debtor may be allowed to keep his/her nonexempt property, provided that they make meaningful payments to unsecured creditors.
4. Income.
In order to qualify under chapter 13, a debtor must have some type of income and be able to make regular payments under a chapter 13 plan. If he/she does not have sufficient income, a chapter 13 case may not be feasible. Conversely, a chapter 7 case may not be feasible for someone with an income so high that it would be presumed by the bankruptcy court to be an abuse.
5. Repaying the debts vs. wiping out the debts.
If a person really wants to repay all or most of the debts, a chapter 13 may be preferable. However, if a person only wants to repay a few debts (such as a house note and a car note), he/she may want to file a chapter 7 and "reaffirm" those debts. Furthermore, if a person simply wants to get a "fresh financial start" by discharging (wiping out) his/her debts as quickly and cheaply as possible, a chapter 7 would probably be the best option.
6. Time and costs.
Chapter 13 cases usually last from three to five years (with a discharge granted at the close of the case). Typical chapter 7 cases last about four to six months (with a discharge granted at the close of the case). As a result of these different time frames, chapter 13 attorney's fees and administration expenses tend to be considerably more expensive.
*Each potential debtor's situation should be examined on a case-by-case basis by the attorney to determine the appropriate type of case to be filed.*
(The above is a translation of material from the Consumer Bankruptcy Handbook.)
