When should you strongly consider Chapter 13 over Chapter 7?
If you are struggling to stay afloat with your finances, you may have already done some research and found out how Chapter 7 can help you. However, since individuals file it less often, you may be unaware of when it would be a better plan for you to file Chapter 13 bankruptcy. Although the answer to this question is complicated, you are likely a better candidate for Chapter 13 if one of the following applies to you.
Foreclosure is imminent
Chapter 13 is a good choice if you are unable to stay current on your mortgage. The reason for this is that, under the payment plan, Chapter 13 gives you three to five years to catch up on your mortgage by using monthly payments to do so. As long as you make the payment each month, you can stay in your house without fear of foreclosure.
This is a better deal than Chapter 7 can offer. Although Chapter 7 can temporarily stop foreclosure proceedings, if you do not bring your mortgage current within a month or so of filing, your lender may ask the court to allow the foreclosure process to continue.
You fear losing property
Although most important property is exempt from the Chapter 7 liquidation sale, you may own property that is nonexempt that you would not like to lose. Common nonexempt property includes second homes, multiple cars, cash and luxury items. Since there is no sale in Chapter 13, you can hold on to all the property you own for the duration of the bankruptcy, as long as you keep up with your monthly payments under the plan.
You wish to protect a co-debtor
Filing Chapter 7 when you owe a debt with other persons is not always an ideal solution. Although Chapter 7 may discharge your obligation on the debt, your creditors may go after your co-debtors for payment. However, if you file Chapter 13, both you are your co-debtors are protected against creditors.
You owe non-dischargeable debts
If you have debts that cannot be discharged in bankruptcy, Chapter 13 can help you. Common debts that survive bankruptcy include, child support and alimony. Under the plan, Chapter 13 allows you three to five years to pay off these debts or become current on them. For many people, this extra time can mean the difference between success and failure. While you are paying off these debts under the plan, your creditors may not garnish your wages or institute any actions against you to collect these debts.
If in debt, get help
The type of bankruptcy you should file is a decision that requires consideration of several factors. To ensure that you make a sound choice, it is important to consult with an experienced bankruptcy attorney before filing. An attorney can listen to your unique situation and recommend the best course of action to resolve your debt problems.