Arizona residents file for Chapter 7 bankruptcy far more than they do Chapter 13, according to the U.S. Bankruptcy Courts' statistical findings for 2013.
According to these statistics, 19,513 residents filed for Chapter 7 bankruptcy in the state last year. By contrast, only 2,935 individuals filed for Chapter 13 bankruptcy. Why the stark divide between Chapter 7 and Chapter 13?
Here are a few reasons why people might favor Chapter 7 over other forms of bankruptcy:
- They are unable to repay debts through repayment plans. It's possible that people are turning to Chapter 7 because they are drowning and debt and desperately need fresh starts. If you cannot afford to repay your creditors under a Chapter 13 repayment plan, Chapter 7 might be your only option.
- They want to discharge most of their debt. Under Chapter 7, most debt is dischargeable, except for nondischargeable debts such as support orders and student loans. It's a viable way to get rid of credit card bills and medical costs. If you're willing to give up your assets to start afresh, Chapter 7 might be a good way to go. By contrast, Chapter 13 involves a repayment plan. You get to keep your assets under Chapter 13, but the debt doesn't vanish into thin air.
- They need fast relief from creditors. Chapter 7 bankruptcies are usually processed relatively quickly compared to Chapter 13 bankruptcies. Generally speaking, they can take as little as three months. After discharge, the debtor no longer has personal liability for the discharged debt. In the typical Chapter 13, you will follow a debt repayment plan, which can last between three to five years.
In general, most debtors prefer to file for Chapter 7 because it eliminates most unsecured debt and is easier. But bankruptcy is not a one-size-fits-all process, so you'll want to consult a bankruptcy attorney to help you figure out whether filing for bankruptcy makes sense in your situation, and if so, what chapter is the best fit.
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