Along with Chapter 7, individuals may consider filing a Chapter 13 bankruptcy. This short article is designed to create some understanding around the differences between a Chapter 7 and a Chapter 13, and why you might choose Chapter 13.
It Might Be The Only Choice (But it’s still a good one)
Some people have too much income and not enough debt to file a Chapter 7. If you don’t pass The Means Test and your income and debt considerations show you have too much disposable income, the bankruptcy code won’t allow Chapter 7 as an option, and you must consider filing a Chapter 13 bankruptcy instead.
Additionally, if you received a discharge in Chapter 7 in the last eight years, or a discharge in Chapter 13 in the last six years, you cannot successfully file again for Chapter 7. The rules for filing a Chapter 13 petition are more lenient: you need only wait four years after filing a Chapter 7, or two years after filing a previous Chapter 13 petition.
You May Want The Protection A Chapter 13 Provides
If you decide with your bankruptcy lawyer that you want to keep your home and file bankruptcy, a Chapter 13 is often the route that allows for this. While you can keep your home when filing Chapter 7, you can only do so if you are current on all home mortage payments. In a Chapter 13, even if you are behind in mortgage payments, you can choose to keep the home. The same is true for considerations regarding taxes and child support obligations.
You May Want To Keep A Business Or Asset
Often, a Chapter 13 filing will allow you to continue to own and operate business assets (Buildings, equipment, etc) in situations where a Chapter 7 may not. The bankruptcy court looks at all of your assets when you are filing, and that often includes assets used for business, so Chapter 13 gives you an opportunity to maintain possession and ownership of those assets while discharging other unrelated debt.
You may also have a personal asset which is non-exempt under a Chapter 7 filing. An example would be a vehicle that is paid for and worth more than the $3,500 exemption plus any “Wild Card” exemptions. Here is a link to a post about exemptions. The filing of a Chapter 13, if it is approved by the court, allows you to keep those non-exempt assets provided your creditors make out as well as they would have if you had filed a Chapter 7. These adjustments are made in your monthly payment in your Chapter 13 plan.
While a Chapter 7 filing is an arguably easier and undeniably faster way to discharge debt, a Chapter 13 filing often helps you accomplish your longer-term goals and objectives. Your attorney can help you sort through the options quickly and easily.
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