Pros and Cons of Different Bankruptcy Chapters


If you’re struggling to keep up with your debts, bankruptcy is a legal option that can provide relief. However, it’s essential to consider the pros and cons before deciding whether to file.

On the one hand, bankruptcy can give you a fresh start. But on the other hand, it may hinder your ability to obtain credit in the future.

What Are the Pros and Cons of Filing Bankruptcy?




Being in a financial crisis can be a stressful and overwhelming experience. Struggling to pay debts, working to make mortgage payments, or constantly fearing eviction or repossession can make any person feel stuck. However, filing for bankruptcy can be a way out and generally is the cheapest option to obtain relief.

Advantages of Filing for Bankruptcy




Freedom from Creditors 

One of the most significant advantages of filing for bankruptcy is freedom from creditors. This protection is provided by 11 U.S.C. section 362 of the Automatic Stay protection, which is addressed in more detail later. Here are some of the areas of relief:

  • Automatic Stay Protection: Once the bankruptcy is filed, the Automatic Stay provides an immediate stop to all collection activities by creditors, including but not limited to: creditor calls,such as repossessions, wage garnishments, and foreclosures. This means that creditors must stop attempting to collect from you during the bankruptcy proceedings. 
  • Protection from Foreclosure: Filing for bankruptcy can prevent a foreclosure sale, allowing you to keep your home or catch up on missed payments or even give you enough time to seek a loan modification.
  • Protection from Eviction: If you’re facing eviction, filing for bankruptcy can prevent it from happening, providing you with enough time to catch up on overdue rent payments, however, if you have already received a judgment for possession/eviction then the bankruptcy’s Automatic Stay will not be effective.
  • Protection from Car Repossession: Filing for bankruptcy can prevent car repossession, and even if it’s already been repossessed, the Automatic Stay can help you retrieve it and stop the lender from selling it after the repossession.

Elimination of Debt



Another significant advantage of filing for bankruptcy is the elimination of debt. Depending on the type of debt, some may be eliminated, and some may be reduced. 

  • Dischargeable Debts: Credit card debt, medical bills, and personal loans are dischargeable debts that can be canceled entirely, providing significant debt relief.
  • Non-Dischargeable Debts: Some debts, such as taxes, student loans, and child support, may not be eliminated. However, Chapter 13 can help you organize those into a manageable repayment plan.

Creditor Harassment

Filing for bankruptcy stops creditors from contacting you constantly, bringing relief from the constant harassment and the stress it can cause.  If the creditor continues to contact you, then they may be liable for damages including punitive damages and attorney’s fees.


Wage Garnishment

Bankruptcy can stop wage garnishments and help you catch up on payments without sacrificing income.  In some cases, your attorney may be able to recover some of the garnished funds taken from you.

Automatic Stay Protection



Automatic Stay is a significant benefit provided when filing for bankruptcy. It can provide immediate relief, allowing you to breathe easier during bankruptcy. 

Automatic Stay provides a legal barrier preventing creditors from continuing, beginning, or revising collection activities without court approval, allowing you to reorganize your finances without worrying about sudden or unexpected collection activities.

The Benefits of Automatic Stay Protection

Here are several significant advantages that come with the Automatic Stay:

  • Ability to Catch Up on Payments: The Automatic Stay stops collection activities, providing a distraction-free environment to catch up on overdue payments.
  • Protection from Foreclosure or Eviction: As mentioned earlier, the Automatic Stay stops foreclosure sales and eviction proceedings, allowing you to keep your home and catch up on past-due payments.
  • Time to Reorganize Finances: The Automatic Stay can give you some breathing space, allowing you to evaluate your finances fully. It gives you the time to recover and plan your financial future.

Disadvantages of Filing for Bankruptcy



Personal bankruptcy provides a way for people struggling with their finances to recover. But while bankruptcy has its advantages, it also has its disadvantages. Knowing these disadvantages is crucial because it can help you decide whether bankruptcy is the best solution.

Credit Damage and Duration

One of the most significant disadvantages of bankruptcy is the damage it can do to your credit. A bankruptcy filing will show up on your credit report for several years, making it difficult to get credit in the future. 

In addition, you will likely have to pay higher interest rates if you get credit. Bankruptcy can also stay on your record for up to 10 years, making it difficult to get a job or rent an apartment.

Expensive Fees

Bankruptcy can also be expensive. Filing for bankruptcy involves many fees, including filing, credit counseling, and attorney fees. 

These fees can add up quickly, and many people end up paying thousands of dollars to file for bankruptcy.  However, it may still end up being your most affordable option. 

Selling of Luxury Items

In Chapter 7 bankruptcy, you may be required to sell some luxury items to pay off your creditors. This can be a complicated process, as it may involve selling items that have sentimental value. You may be able to keep some of your assets, but you will need to work with your bankruptcy attorney to determine which assets are exempt from sale.

Difficulty in Borrowing

Obtaining a credit card or loan can be challenging after declaring bankruptcy. This can affect your ability to acquire a mortgage loan, and the interest rate may be higher if you do.

It’s also possible that you will have to wait a certain period before being eligible for a mortgage loan after filing for bankruptcy.

Different Kinds of Bankruptcy



If you opt for bankruptcy, you must choose between filing under Chapter 7, Chapter 11, or Chapter 13.

Both Chapter 7 and Chapter 13 bankruptcy can assist in erasing unsecured debts like credit cards, pausing foreclosures or repossessions, terminating wage garnishments, utility shut-offs, and debt collection attempts.

Both types of bankruptcy require you to cover your court expenses and lawyer fees. Nevertheless, they discharge debts differently.

Chapter 7 Bankruptcy



When people are thinking about filing for bankruptcy, they usually have Chapter 7 in mind. Chapter 7 bankruptcy is also referred to as “straight bankruptcy.”

For this specific bankruptcy, you must allow a federal appointed trustee to oversee the bankruptcy filing and they have the authority to sell any assets that are not exempted. Exempted assets may include cars, work-related tools, and basic household furnishings.

After selling, the money will be used to pay your exemption amount, pay the trustee’s attorney, pay the trustee and ultimately pay your creditors, and your remaining balance will be cleared when the bankruptcy is discharged. However, Chapter 7 bankruptcy does not cover all types of debts. Debts such as court-ordered alimony, child support, some taxes, and student loans must still be paid.

Filing for Chapter 7 bankruptcy can bring about serious outcomes. For example, you could lose your property, and the bankruptcy details will reflect on your credit report for ten years starting from the filing date. You will also be restricted from filing for bankruptcy under Chapter 7 for the next eight years if you get into debt again.

What are the disadvantages of Chapter 7 bankruptcy?

Chapter 7 bankruptcy has some downsides to consider. These include the fact that not all unsecured debts will be discharged, there is a risk of losing nonexempt property, and there may be a temporary negative impact on your credit score.

Chapter 11 Bankruptcy



Chapter 11 bankruptcy allows businesses and individuals with significant debts to restructure their finances and keep operating. The debtor-in-possession retains control of the company but is monitored by the bankruptcy court. To be approved, the debtor must present a plan for reorganizing their finances and business operations that both the court and creditors agree to.

Although Chapter 11 offers various advantages, the process can be complex and costly, often necessitating the assistance of a proficient bankruptcy attorney.

What are the disadvantages of Chapter 11 bankruptcy?

Debtors must provide extensive financial information to file for reorganization under Chapter 11 by submitting detailed documents to the bankruptcy court. The nature of the records required may differ based on the type of debtor. However, this process may result in a loss of privacy for the debtor.

To reorganize their debts and obligations under Chapter 11, debtors must demonstrate that their operation is profitable.

Chapter 13 Bankruptcy



In Chapter 13 bankruptcy, you can repay your debt partially or fully and keep your property.

Your attorney will discuss a repayment plan with the bankruptcy court that will last three to five years. The procedure may require you to repay some or all of your debt within that time. Once you have completed the agreed repayment plan, your debt will be discharged, regardless of the amount you repaid – even if it is only a portion of the original debt.

Although all forms of bankruptcy harm your credit score, choosing Chapter 13 might be better. This is because you can keep some of your assets as you repay some or all of your outstanding debt.

Furthermore, a Chapter 13 bankruptcy will expire from your credit report within seven years, and it is possible to file again within four years and obtain another discharge.

What are the disadvantages of Chapter 13 bankruptcy?

A Chapter 13 bankruptcy remains on your credit report for around seven years, but you can use that time to rebuild your credit.

Some types of debts cannot be eliminated through Chapter 13 bankruptcy. In addition, it typically takes 3-5 years to repay your debts entirely.

What’s the difference between Chapter 7 and Chapter 13?

Even though both forms of bankruptcy may entail selling assets to pay off debts, specific properties may not need to be sold.

State laws specify what assets are exempt, but typically essential tools for work, a personal car, or a share of the primary residence may be protected.

Chapter 7 bankruptcy relieves your responsibility to pay the debt. It does not cancel the debt for anyone else. If you want to protect a co-signer, Chapter 13 bankruptcy works only because you will repay the debt through your repayment plan.

Which bankruptcy chapter is better?

If you are facing foreclosure or repossession of a vehicle, usually filing for Chapter 13 is the best option. However, if you are struggling with credit card debt and medical bills and do not have a car or own a home, filing for Chapter 7 is often the better choice.

If you have a more complex situation involving a combination of these factors, own a business, owe taxes, or have a high income, it may need to be clarified which chapter to file, and you may need to consider individual Chapter 11.

Seeking professional help is the best course of action. It is recommended to schedule a free consultation with a bankruptcy attorney in person to discuss your situation. It is important to note that providing legal advice over the Internet is not reliable and insufficient, so more information will be needed to answer your question accurately.

The Process of Bankruptcy



During the bankruptcy proceedings, you must go through these steps.

To file for bankruptcy, you must meet with a credit counselor approved by the government. During this meeting, you will discuss your financial situation, bankruptcy options, and personal budget. Your bankruptcy attorney can recommend a counselor. This meeting must take place within six months before filing.

If you require the services of a bankruptcy lawyer in Michigan, you can confidently reach out to Babi Legal Group. Our team is well-versed in all aspects of bankruptcy and can offer you reliable guidance on navigating the process.

The most complex component in this process is the bankruptcy petition, a detailed document that strictly categorizes and describes all your outstanding debts. Typically, a bankruptcy attorney will generate this document for you by examining your financial papers and asking questions about your financial situation.

The bankruptcy timeline begins when your lawyer gathers the necessary information, prepares the documentation, and files the petition with the bankruptcy court.

To file for Chapter 7 bankruptcy, you must undergo a Means Test. This ensures only those who cannot pay their debts can file for bankruptcy. If you fail, your bankruptcy may be dismissed or converted into a Chapter 13 bankruptcy.

You have to meet with the bankruptcy trustee assigned by the court to represent your creditors. They review your bankruptcy application, sell assets in case of Chapter 7 bankruptcy, and distribute the money to your creditors. In the case of Chapter 13 bankruptcy, they will supervise your repayment plan, collect your payments and distribute the funds to the creditors.

After bankruptcy proceedings are finished, the bankruptcy is known as “discharged.” Chapter 7 happens when your assets are sold and used to pay off your creditors. In Chapter 13, it occurs when you’ve finished your repayment plan.

What is a Reaffirmed Account? 

In Chapter 7, bankruptcy, you can keep paying a debt that could be forgiven. This is called “reaffirming the account” and is typically done to maintain ownership of the collateral, like a car, that would otherwise be taken during bankruptcy proceedings.

Types of Debt

When you declare bankruptcy, some debts are discharged and no longer owed. Depending on the type of bankruptcy you file, secured debt may be partially or fully discharged, while unsecured debt may be completely wiped out.

Secured and Unsecured Debts

Secured debt is a type of debt that is guaranteed by tangible property, like a home or a vehicle, which creditors can seize if you are unable to repay the loan.

On the other hand, unsecured debt is a debt with no tangible collateral, like credit card debt.

Non-forgivable Debt

Bankruptcy doesn’t provide complete relief from all debts, as certain types of unforgivable debts can’t be eliminated. These include most student loan debt (although some members of Congress are trying to change this), court-ordered alimony, court-ordered child support, reaffirmed obligation, federal tax liens for taxes owed to the U.S. government, and government or court fines and penalties.

Can the bankruptcy court send you to jail?



A bankruptcy court is distinct from other courts as it deals with the distribution of assets in liquidation or restructuring following a bankruptcy filing. While it doesn’t address criminal matters, different courts may hold you accountable for financial misconduct related to your bankruptcy, such as misusing investor funds.  In cases of fraudulent bankruptcy filing, the court can bring in the Department of Justice to criminally investigate you to seek federal criminal charges. .

Alternatives to Bankruptcy

If you’re concerned about losing property or how bankruptcy can affect your career and result in high-interest rates and low credit limits, consider these alternatives to filing for bankruptcy.

Settle your debt

An informal debt settlement is an agreement that you can voluntarily negotiate with your creditors regarding the terms of your debt. You should contact each of your creditors directly and discuss the interest rates, payment amounts, and schedules.

Consolidate your debt



If you’re finding it challenging to keep up with numerous debts with different interest rates, consider getting a loan that consolidates all your debts into one monthly payment. This payment typically has a lower interest rate.

If your credit score is good and you can afford the monthly payment, debt consolidation might be a good option. Just remember you may need a co-signer to guarantee the loan.



Bankruptcy is not ideal, but it can be an opportunity to start fresh. By understanding the advantages of filing for bankruptcy, individuals can make informed decisions that can bring significant debt relief and ease the stress and burden of financial crises.

We encourage you to seek professional legal assistance to help guide you through the process and evaluate options that best suit your financial situation. Remember that natural relief requires real solutions.