New York Chapter 7 Bankruptcy or New York Chapter 13 Bankruptcy?

There are several situations where a Chapter 13 is preferable to a Chapter 7. A Chapter 13 bankruptcy is the only choice if you are behind on your mortgage or business payments and you want to keep your property, either in New York or another state, at the end of the bankruptcy process. A chapter 13 bankruptcy allows you to make up their overdue payments over time and to reinstate the original mortgage agreement. In general, if you have valuable property not covered by your New York bankruptcy exemptions that you want to keep, a chapter 13 filing may be a better option. Also, people file Chapter 13 bankruptcy because they have too much income to file a Chapter 7 bankruptcy or have the kind of debt that is non- dischargeable in a Chapter 7 (e.g. certain taxes).

However, for the vast majority of New York residents who simply want to eliminate their heavy debt burden without paying any of it back, Chapter 7 provides the most attractive choice.

For a more on the two types of bankruptcy see:

A quick overview of the advantages and disadvantages of a the two types of bankruptcy:

Advantages to a New York Chapter 7 filing:

  1. You receive a complete fresh start. After the bankruptcy is discharged the only debts you owe will be for secured assets on which you choose to sign a “Reaffirmation Agreement.”
  2. You have immediate protection against creditor’s collection efforts and wage garnishment on the date of filing.
  3. Wages you earn and property you acquire (except for inheritances) after the bankruptcy filing date are yours, not the creditors or bankruptcy court.
  4. There is no minimum amount of debt required.
  5. Your case is often over and completely discharged in about 3-6 months.

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Disadvantages to a New York Chapter 7 filing:

  1. You lose your non-exempt property which is sold by the trustee. If you want to keep a secured asset, such as a car or home, and it is not completely covered by your New York bankruptcy exemptions then Chapter 7 is not an option.
  2. If facing foreclosure on your home, the automatic stay created by your Chapter 7 filing only serves as a temporary defense against foreclosure.
  3. Co-signors of a loan can be stuck with your debt unless they also file for bankruptcy protection.
  4. If you filed a prior case and received a discharge of your debts, you can only file a second Chapter 7 bankruptcy case eight years after you filed the first case.

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Advantages to a New York Chapter 13 payment plan:

  1. If you choose and you can afford the payment plan, you can keep all your property, exempt and non-exempt.
  2. While debts are not canceled as in a Chapter 7 discharge they can be reduced under a Chapter 13 payment plan.
  3. You have immediate protection against creditor’s collection efforts and wage garnishment.
  4. More debts are considered to be dischargeable (including debt you incurred on the basis of fraud and credit card charges for luxury items immediately prior to filing).
  5. If the Chapter 13 plan provides for full payment, any co-signers are immune from the creditor’s efforts.
  6. You have protection against foreclosure on your home by your lender as long as you meet the terms of the plan.
  7. You have more time to pay debts that can’t be discharged by either chapter (like taxes or back child support).
  8. You can file a Chapter 13 at any time.
  9. You can file repeatedly.
  10. You can separate your creditors by class where different classes of creditors receive different percentages of payment. This enables you to treat debts where there is a co-debtor involved on a different basis than debts incurred on your own.

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Disadvantages to a New York Chapter 13 payment plan:

  1. You create a payment plan where you use your post bankruptcy income. This ties up your cash over the Chapter 13 plan period.
  2. Legal fees are higher since a Chapter 13 filing is more complex.
  3. Your plan and therefore your debt will last for 3 to five years.
  4. You are involved in the bankruptcy court process for the term of the 3-5 year plan.
  5. Stockbrokers, and commodity brokers cannot file a Chapter 13 bankruptcy petition.

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