Reasons People File for Chapter 13 Bankruptcy

Individuals filing for bankruptcy in the United States have two options: Chapter 7 bankruptcy or Chapter 13 bankruptcy.

Chapter 7 is likely the first thing that comes to mind when people think of bankruptcy. This process involves liquidating personal assets to pay off one’s debts. Filing for

Chapter 13 bankruptcy is also a relatively common process, and it’s a solid option for many.

Chapter 13 bankruptcy, rather than liquidating assets, offers the debtor a restructured financial plan for repaying their debts. The typical timeframe for these repayments is between three and five years of payments made to creditors.

If you are wondering how to file for bankruptcy Chapter 13, the process is similar to that of Chapter 7. Both require completion of the bankruptcy mean test to document all sources of income.

If the applicant’s income is beneath the state average, they qualify for Chapter 7. For those who do not qualify for Chapter 7, Chapter 13 is an option.

Some people elect to file for Chapter 13 over Chapter 7. Each offers financial relief in different ways. Here are some of the reasons why an individual may file Chapter 13 bankruptcy.

Too Much Income for Chapter 7

The means test accounts for all income for the past six months. To qualify for Chapter 7, the applicant’s income usually needs to be below the state’s mean income.

Those whose income is too high for Chapter 7 are deemed to have “disposable income.”

But having disposable income does not always mean you can afford to pay off all of your debts. In these situations, individuals can instead file Chapter 13 bankruptcy to restructure their debt payments.

Reasons People File for Chapter 13Avoid Losing Assets

Once an individual files for bankruptcy, creditors must stop all collection efforts.

However, with Chapter 7 bankruptcy, this freeze is only temporary. Certain assets belonging to the debtor will be liquidated. In some cases, creditors can even foreclose on a debtor’s home.

But with Chapter 13, creditors may not seize any of the debtor’s assets until the bankruptcy process is complete. Additionally, Chapter 13 does not require any liquidation of assets.

Rather, the individual is given a repayment plan so that they can affordably pay off their debts on time.

Filing Chapter 13 May Be Cheaper

Yes, filing for bankruptcy does cost money. But in some cases, filing for Chapter 13 can cost less than filing for Chapter 7.

Under Chapter 7, the debtor is required to pay back most debts in full. Meanwhile, under Chapter 13, debts can be restructured. This leads to smaller regular payments under the restructured finance plan. This can ultimately result in financial savings in the long term.

It is important to note, however, that this is not always the case. Each case has its specifics. Additionally, while the “cost” of a Chapter 7 filing may be greater, this process also involves the liquidation of assets.

So, some of the direct financial burdens of a Chapter 7 filing is reduced during this process. This loss of assets, however, is something that many hope to avoid when filing for bankruptcy.

Less Impact on Credit Score

All bankruptcy filings will affect your credit score. This can be more drastic for individuals who previously had a high credit score. Individuals with average or below-average credit scores prior to filing will still see their credit score take a hit. While the financial refresh is enough of a benefit to make up for the hit, it is still not ideal.

Chapter 13 stays on your credit score for less time than Chapter 7 does. A Chapter 7 bankruptcy filing will continue to impact your credit score for up to ten years. Chapter 13, meanwhile, only affects an individual’s credit score for seven years.

If you are considering filing for bankruptcy, a crucial first step is to hire a bankruptcy lawyer. With an attorney on your side, your future financial security will be in much safer hands.

Discuss your options with one of our bankruptcy lawyers today! To discuss with an experienced attorney, call us at 801-285-0980.

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At Blue Bee Bankruptcy, our lawyers are highly experienced in the various filing options.

More importantly, we understand that each case we receive is unique and each client has different needs and goals. We will discuss these signs with you and decide the best route to take.

We strive to help our clients rebuild their lives and take steps toward a better financial future through filing. 


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If you’re dealing with the potential of bankruptcy, give us a call. Our team will work to help you by reviewing all of the options our firm has available. We will ensure you’ll get the best possible outcome for your situation.

Get in touch today so we can start working on either halting bankruptcies or preventing them from taking place altogether!

Contact Us Today For Help! You can schedule your free consultation online or call us at (801) 285-098.


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