You may have heard that Chapter 7 is a more effective bankruptcy option than Chapter 13. Many people have that impression about debt relief, but it’s not necessarily true.
Chapter 7 can sound like a better deal because qualifying debt gets eliminated for those who qualify, while Chapter 13 requires you to pay some of it back. In Chapter 7 bankruptcy, assets are liquidated to repay outstanding debt. In Chapter 13 cases, debtors have to stick to a strict, long-term repayment plan in order to pay down debt. The goal in both cases is to work towards the discharge of this debt and there are advantages and disadvantages for these two bankruptcy options.
Let’s look at a few of the situations in which your lawyer will recommend Chapter 13 as the best option for your financial future.
…You Don’t Qualify for Chapter 7 Bankruptcy
Unfortunately, filing for Chapter 7 bankruptcy is not an option for everyone. Debtors in Ohio must meet two requirements in particular in order to qualify.
1. In the six months before filing for bankruptcy, the debtor’s income must be less than the median for households of that size in the state of Ohio.
2. The debtor must also meet the means test. This is an evaluation of your income, expenses and the amount of debt you have accumulated. It is designed to determine if you are capable of repaying some of your debt as part of a Chapter 13 repayment plan, in which case you would not qualify for Chapter 7. Try this quick means test calculator.
…You Want to Stop Foreclosure on Your Home
Filing for Chapter 13 can be a better bankruptcy option because it can help you save your home from liquidation. This type of bankruptcy can help stop foreclosure on the house and give you time to catch up on mortgage payments.
…You Want to Keep Your Car
Similarly, by filing for Chapter 13, you can keep your car and be granted time to catch up with late payments. Chapter 7 bankruptcy, on the other hand, reverts to liquidation and doesn’t let you work towards repayment for these types of assets.
…You Want to Keep Non-Exempt Property
It’s true that completing a bankruptcy program only allows you to retain certain exempt property and possessions. Both Chapter 7 and Chapter 13 will limit the value of assets you can keep. (See what property is exempt in Ohio bankruptcy cases.) Filing for Chapter 13, however, does not require you to sell or liquidate your assets. The repayment plan laid out by the bankruptcy trustee will be based on your income. Then, you can keep any non-exempt property by paying back its value as part of the three or five-year repayment plan.
…You Have Debt that Cannot be Discharged
Chapter 13 is a valid option for anyone who has accumulated domestic support payments – such as alimony or child support – or tax debt. These are the most common types of debt which cannot be discharged in a bankruptcy case. A Chapter 13 repayment plan, however, can offer debt relief by prioritizing it and helping you work towards getting non-priority and unsecured debt discharged.
…You Need Time to Catch up with Payments
It can feel like debt piles up quickly and creditors can be unrelenting. Chapter 13 can be a good option for someone who just needs some extra time to make up payments. Bankruptcy court provides protection through what is called an automatic stay. Once you file for bankruptcy, the automatic stay prevents creditors from harassing you or repossessing property during the three or five-year repayment period.
…You Have a Codebtor for Personal Debt
If you file for Chapter 7 bankruptcy, there is no protection or relief from creditors provided for your codebtor. Alternatively, Chapter 13 has the advantage of protecting both debtors during the bankruptcy repayment period.
…You Want to Restructure Your Budget
If you file for Chapter 7 bankruptcy, and wish to keep items that have been used as collateral for a loan, (such as your car for a car loan, or your home for a mortgage), you’re typically required to stick with the payment amounts and interest rates set on the original contract. In a Chapter 13, most secured debts can be restructured to reduce interest rates, cut the amount of the loan that you have to pay back, and/or adjust the number of months until the debts are paid off. For families with tight budgets, filing a chapter 13 may actually loosen their budget and make their day-to-day lives much easier.
Looking for more trustworthy legal advice? Check out the 8 Recommendations for Surviving Chapter 13 Bankruptcy by Amourgis & Associates.
Consult with a Professional
Your financial situation is unique and there are a lot of factors that go into determining the best solutions for each person. Get a legal team that will look after your best interests and fight to protect your assets.
Contact the experienced bankruptcy attorneys at Amourgis & Associates today – (844) 218-2721.