IS Chapter 7 better than Chapter 13? I would say generally speaking if you have accumulated debt that is too burdensome for you, Chapter 7 is better for you than Chapter 13 because, in Chapter 7, all your debts are wiped out, giving you a fresh start in life so you can be productive again.
In Chapter 13, you’re paying something to the trustee who distributes that among all your creditors for 36 to 60 months.
The senior client owes $60,000 of credit cards. He’s now on social security with $2,000 a month whereas he used to gross $6,000 a month before retirement. Chapter 7 would just wipe out the entire $60,000. He doesn’t have to pay a single cent back, thus getting a fresh start without the $60,000 of debt. What if he had $500,000 in his 401K, could he still get a Chapter 7 discharge of the $60,000 cards? Yes because ERISA qualified retirement accounts are exempt up to $1.1M. Can he qualify for Chapter 7 even if his equity in his residence is $500,000? Yes because 704.730 was recently amended to provide a homestead exemption in LA County of $600,000.
In Chapter 13, the client would have to pay a portion of the $60,000. Just this fact alone makes Chapter 7 “better” than Chapter 13. If the client needs to pay $300 a month in Chapter 13 for 60 months, this means he has to pay at least $18,000 of the $60,000, so Chapter 13 is $18,000 more expensive than Chapter 7 where the client pays nothing.
However, things are not as simple as the foregoing. Sometimes, debtors cannot qualify for Chapter 7, or Chapter 13 is more beneficial for them because of certain circumstances. For example, the debtor is behind in his $20,000 house payment. Chapter 13 will freeze the $20,000 and allow the debtor to pay off the amount in 60 months, thus saving his house from foreclosure.
So each case is different from other cases. If you need debt relief, please set an appointment and I will analyze your case personally.
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DISCLAIMER: NONE OF THE FOREGOING IS CONSIDERED LEGAL ADVICE. EACH CASE IS DIFFERENT.
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Lawrence Bautista Yang specializes in Bankruptcy, Business, Real Estate and Civil Litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 20274 Carrey Road, Walnut, CA 91789 or 1000 S. Fremont Ave., Mailstop 58, Building A-10 South, Suite 10042, Alhambra, CA 91803.
