If you are considering filing bankruptcy, your attorney should discuss both Chapter 7 bankruptcy and Chapter 13 bankruptcy with you. While both result in a discharge, the paths taken to get there are quite different. A Chapter 7 is a fast, clear-cut discharge of debt, while a Chapter 13 bankruptcy involves the confirmation of a plan and monthly plan payments. So why would someone choose a Chapter 13 over a Chapter 7?
Make Up Past Due Balances On Home and Vehicles
In a Chapter 13, you can successfully file even if you’re behind on a vehicle or home, and you can keep that vehicle or home in the Chapter 13 while you use the plan payments to slowly get caught up. In a Chapter 7, if you’re behind on a home or vehicle, you can still file but you have to surrender the property in the bankruptcy.
Manage Tax Debt
While there are instances where old tax debt is discharged in a bankruptcy, only a Chapter 13 filing puts you on track for being caught up with both the IRS and the NC Department of Revenue at the completion of your plan. The same tax debt which is discharged in a Chapter 7 is also discharged in a Chapter 13, so you’re only paying on tax debt in a Chapter 13 that would otherwise survive a Chapter 7 filing.
Minimal Payments to Unsecured Creditors
Often, after an analysis of your income, assets and debt, your Chapter 13 payment plan will consist mainly of mortgage, vehicle, and other secured debt payments– quite often your unsecured creditors (credit cards, medical bills) are getting zero to 10% in the Chapter 13 plan. The reason for this is that the Chapter 13 plan payment has a feasibility component to it that considers your income, assets, debt and disposable income. The Chapter 13 Trustee will not approve you for a plan payment that you cannot afford, and the bankruptcy law allows for lower payouts to unsecured creditors in almost all circumstances.
If you have questions about a Chapter 13 bankruptcy, Chapter 13 bankruptcy plan payments, or any other aspects of Chapter 13 bankruptcy, please feel free to call me at 704.749.7747. I’ll be happy to provide answers and help you determine your options.