Basic Pros and Cons to Filing Chapter 7 and Chapter 13 Bankruptcy
Pros to Chapter 7The first positive aspect of filing a Chapter 7 bankruptcy is that if it is a simple no asset case, the case will take 3-4 months from the time of filing to the time of discharge. These cases are also less expensive to file, and generally come with lower attorney's fees. In a 'no asset' Chapter 7, the Debtor will pay nothing to unsecured creditors and will receive a discharge quickly.
Cons to Chapter 7The first negative aspect of filing a Chapter 7 is that a Chapter 7 is only a short term, non-permanent cure for a debtor who owns a house and is behind on a mortgage.
Pros to Chapter 13The first positive aspect of a Chapter 13 bankruptcy is that a debtor who is behind on their mortgage can include the arrears of the mortgage into the Chapter 13 Plan, and potentially save their house. This is a very attractive option to debtors facing a foreclosure. A second positive aspect can be a technique known as "stripping off" the second mortgage. A debtor who owns a house and has two mortgages, if the house is underwater on the first mortgage, the second mortgage is sometimes entirely unsecured. In this case, the second mortgage will change from a secured creditor, to an unsecured creditor, and will receive only pennies on the dollar throughout the course of the 3-5 year Bankruptcy Plan.
Additionally, a Debtor facing a significant tax bill, from either the IRS or the MDOR, can put these taxes into a Chapter 13 Bankruptcy Plan. These will be paid in full, but the Bankruptcy Plan will allow for the Debtor to eliminate interest and penalties.
Cons to Chapter 13Generally, Chapter 13 cases take between 3-5 years to complete. During those 3-5 years, the Debtor is expected to make a 'Plan payment' to the Chapter 13 Trustee, who will distribute the payment appropriately to certain creditors.
Usually, an attorney handling a Debtor's Chapter 13 case will charge a higher flat fee rate than a Debtor filing a Chapter 7 case, due to the complex nature, additional time, and different considerations that arise in a Chapter 13 Plan which are absent in a Chapter 7 Petition.