Getting to a point where you recognize that you need bankruptcy protections is difficult. Deciding how to file bankruptcy can be even harder. There are multiple forms of bankruptcy available. Most individuals will file either Chapter 7 or Chapter 13 bankruptcy.
Chapter 7 bankruptcy is often faster than Chapter 13. However, Chapter 13 bankruptcy has many of its own unique benefits. Also known as a wage earners plan, Chapter 13 bankruptcy involves you completing a repayment plan for several years before your discharge. There are at least three circumstances in which Chapter 13 bankruptcy could be the better option for you.
Your income is too high to qualify for Chapter 7 bankruptcy
In order to file for chapter 7 or liquidation bankruptcy, you have to pass a means test. You will have to show that your adjusted income is equal to or less than the state median income. If your income is too high, a Chapter 13 filing can give you the relief you need without requiring that you reduce your income.
You have valuable property or a home you’ve paid off
If you have substantial assets, you may not want to dip into them or get rid of them to pay off your debt. Although you can exempt some of your property in Chapter 7 bankruptcy, the court can order the sale of assets in order to repay your creditors before granting a discharge.
If you stand to lose more than a few thousand dollars of equity or other assets, Chapter 13 bankruptcy may be the better solution for you because it does not require asset liquidation.
You want to protect your financed property
If you have a car loan or a mortgage with payments in arrears, Chapter 13 bankruptcy can give you a chance to fix that. Renegotiation of debt is a common part of the process, and lenders might be willing to give you better terms if you agree to a repayment plan.
You might be able to extend how long you have to make payments, add the past due amount to the end of the payment cycle or even reduce your monthly payment amount or interest rate.
Chapter 13 bankruptcy requires careful planning and adherence to the repayment plan, but it can be beneficial for professionals, homeowners and others with significant assets or income who also have overwhelming debt.
