Chapter 7 bankruptcy may be quick and seem far less of a hassle than Chapter 13, but there are certain scenarios where Chapter 13 may be better than filing for Chapter 7 bankruptcy. Sometimes, you have no other option other than filing for Chapter 13.
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So how do you decide whether your should file for Chapter 13 bankruptcy? Let’s find out.
Most people would consider Chapter 13 an option when they’re ineligible for Chapter 7 Bankruptcy. This happens when:
- Your average monthly income in the six months period prior to the filing date exceeds the median income level in your state for your household size, and
- Your disposable income (after deducting all allowable expenses, as defined in the Bankruptcy Code) exceeds $200.00 per month.
There is a handful other eligibility criteria for Chapter 7 that you may have to consider in case you’ve already filed for a Chapter 7 before. For now, they aren’t relevant.
Even if you are eligible for filing a bankruptcy petition under chapter 7, there are certain circumstances where a Chapter 13 bankruptcy becomes more beneficial for you. The following instances make Chapter 13 bankruptcy a better option over Chapter 7:
You sincerely wish to repay your debts
but you need time and the court’s protection to accomplish the feat. This is often the case where your creditors are not cooperating with your efforts to deal with your debts. Chapter 13 provides you the framework you need to see through the execution of your good intentions.
You share a personal debt with a co-obligor
In this case, filing Chapter 7 bankruptcy would leave your co-debtor “on the hook” for the debt and the creditor will be able go after them to recover full payment. A Chapter 13 bankruptcy will make sure the creditor leaves any joint obigor alone for as long as you’re keeping up with the prescribed bankruptcy plan payments.
You are behind on car loan or mortgage payments
If you’re looking for a solution that will allow you to catch up with the missed payments in order to reinstate your original mortgage, Chapter 7 bankruptcy may not help you. In Chapter 13 bankruptcy you propose a repayment plan that allows you time to catch up on mortgage arrears over a 3 to 5 year period.
You wish to keep your non-exempt property
Chapter 7 allows you to keep only your exempt property. The non-exempt property has to be surrendered to the trustee who may liquidate it off to pay your creditors. In Chapter 13, none of your property will be liquidated as long as you agree to repay your creditor the non-exempt value of your assets.
You have non-dischargeable obligations that you’re having trouble meeting.
Chapter 13 allows you the flexibility to include your past due tax debts and domestic obligations in your plan in order to pay them off through your monthly payments over time.