Why Might Some Debtors Fare Better in Straight Bankruptcy Than in Chapter 13?

There are several circumstances in which straight bankruptcy may be preferable.

First, there are many debtors for whom the advantages of Chapter 13 do not matter: debtors with no nonexempt assets they particularly wish to keep, no debts excepted from discharge in Chapter 7, no history of receiving any bankruptcy discharge within the last six years and no co-signers on their loans.

Second, the benefits of Chapter 13 may come at the price of committing the debtor's disposable income to creditors for as long as three or even five years. In Chapter 7, the debtor can keep post-petition earnings from personal services free and clear from discharged pre-bankruptcy debts.

Third, some debtors are legally ineligible for Chapter 13, either because their income is not sufficiently regular to fund payments under a plan or because the amount of their debt exceeds the limits mentioned above.

Family Legal Guide Copyright © 2000, 2002 American Bar Association