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Is Chapter 7 Better Than Chapter 13?


In most cases, yes. The long and difficult Chapter 13 process usually takes at least five years to complete. In contrast, judges usually issue Chapter 7 discharge orders in less than nine months. Therefore, these debtors quickly put their financial problems behind them and move on with their lives. Furthermore, as outlined below, Chapter 7 includes the same debtor protections as Chapter 13.

Basically, Chapter 7 gives debtors a chance to make a fresh start. A bankruptcy lawyer helps debtors make the most out of this opportunity. Our legal team carefully reviews your case and determines your best legal option. Then, we just as carefully file legal paperwork. Like a good woodworker, we measure twice and cut once. Finally, we advocate for you through the entire Chapter 7 process.

Chapter 7

People who file Chapter 7 basically tell the judge “I cannot pay my debts, so you may liquidate all my nonexempt assets to pay those debts.” Unless they have big ticket luxury items, like private jets and yachts, most people don’t have nonexempt assets. Protected assets in California include:

  • Home equity;
  • Retirement account;
  • Motor vehicle;
  • Government benefits; and
  • Personal property.

Bankruptcy exemptions are rather complex in the Golden State. Usually, debtors may choose between two sets of state exemptions. Generally, one set is better for property renters and the other is better for property owners.

However, the strategic application of these exemptions, combined with an understanding of the economic realities of asset liquidation, can sometimes protect additional assets beyond those explicitly listed. A knowledgeable Costa Mesa bankruptcy lawyer can provide crucial guidance on maximizing the use of exemptions and presenting arguments based on practical considerations to the trustee.

Consider the case of Phil who owns a motorboat not covered by any specific exemption. In a Chapter 7 bankruptcy, the trustee, who administers the bankruptcy estate under the court’s oversight, evaluates the cost-effectiveness of liquidating assets. This evaluation includes assessing the costs to pay off any remaining loan on the boat, as well as expenses related to repair, storage, listing, and sale or auction fees.

If the total costs associated with these activities are likely to absorb most of the potential sales proceeds, rendering the net benefit to creditors minimal or non-existent, the trustee may decide against liquidating the boat. This decision is driven by a practical approach to estate administration, aiming to ensure that the liquidation process yields a tangible benefit for creditors.

Most people qualify for Chapter 7 bankruptcy. In most cases, their income is below average, and they are in the negative every month.

Chapter 13

In contrast, qualifying for Chapter 13 is not easy. The debtor must have sufficient disposable income to make a large monthly debt consolidation payment. Additionally, debt ceilings apply. Many over-leveraged debtors are perilously close to these ceilings.

Additionally, Chapter 13 doesn’t solve anything, at least in many cases. We mentioned over-leveraged debtors above. If Phil bought a house he cannot afford, Chapter 13 allows him to bring the loan current, but it doesn’t change the fact that he still owns a house he cannot afford.

Phil has time to bring the loan current because in Chapter 13, as well as Chapter 7, the Automatic Stay prohibits most creditor adverse actions, including,

  • Foreclosure;
  • Creditor harassment;
  • Repossession;
  • Wage garnishment; and
  • Eviction.

Despite its drawbacks, Chapter 13 could be a good idea in some cases. For example, if Phil’s divorce temporarily knocked him off his feet financially, but he’s okay now, he might consider Chapter 13.

Count on a Savvy Lawyer

Regardless of your financial problems, there’s usually a way out. For a free consultation with an experienced bankruptcy lawyer in Costa Mesa, contact The Law Office of Charles A. May. The sooner you reach out to us, the sooner we start working for you.


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