Chapter 13 bankruptcy requires you to make payments to the court for three to five years prior to the discharge of your debts. On the other hand, Chapter 7 cases can result in a discharge in a matter of months without requiring any payments at all. For this reason, most people assume that Chapter 7 is the preferable option and, in fact, Chapter 7 is by far the most common type of consumer bankruptcy. However, this does not mean that Chapter 7 is always the best choice for everyone experiencing financial problems.
Why Chapter 13 Bankruptcy Might be Right for You
It is always a good idea to have an experienced bankruptcy attorney evaluate the best type of bankruptcy case based on the details of your situation. In some cases, your attorney will advise you to file for Chapter 7 like most consumers. However, there are several reasons why Chapter 13 might be right for you.
You Do Not Qualify for Chapter 7
The Bankruptcy Abuse Prevention and Consumer Protect Act of 2005 (BAPCPA) limited who could file for Chapter 7 bankruptcy by implementing the “means test.” This is a test that you must pass in order to obtain a Chapter 7 discharge. The test compares your income against the mean income for the same-sized household in your state, as reported by the Department of Justice. If your income – minus qualified expenses – is higher than the mean for your state, bankruptcy law assumes that you have enough income to pay some of your debts. If your income is too high for Chapter 7, you still have the option of filing a Chapter 13 case.
You have Nonexempt Property You Want to Retain
While Chapter 7 bankruptcy does not require you to make payments, the law does require you to give up property or assets that are nonexempt. If your attorney applies for all possible exemptions and you still have significant property leftover – or property with personal meaning – you might not want to forego that property to the bankruptcy trustee, who will liquidate it and give the proceeds to creditors.
The good news is that Chapter 13 bankruptcy does not require you to give up any property or assets. Instead, you use your income to make the required payments. If you have a nonexempt property and a quick discharge is not worth giving up that property, you will not have to part with it in a Chapter 13 case.
You are Behind on Secured Loans or Other Nondischargeable Debts
Many people who need to file for bankruptcy are also behind on their car loan or mortgage loan. Chapter 7 bankruptcy does very little to address the problem of secured debt, so you might still be in danger of losing your home or your vehicle after your case was closed. On the other hand, the Chapter 13 process often helps prevent foreclosure or repossession.
This is because a Chapter 13 debt reorganization allows you to wrap your mortgage or car loan arrears into your repayment plan. This means you will need to keep up with current payments while you catch up on past-due amounts over the length of your case. This can make secured payment much more manageable. In this situation, mortgage lenders may be more likely to negotiate for a mortgage loan modification or another solution to avoid losing your home.
Similarly, Chapter 13 can help you address a past-due child or spousal support, tax obligations, and other debts that will not at all be addressed in a Chapter 7 case.
You Have Cosigners Other than Your Spouse on Debts
Many people have cosigners on debts. If your spouse is your cosigner, you can file for Chapter 7 bankruptcy together and discharge those cosigned debts. However, you cannot file for joint bankruptcy with someone who is not your spouse. If you file for Chapter 7 and you have a non-spouse cosigner on certain debts, those debts will not be discharged, and your cosigner will still be responsible for that debt.
If you file for Chapter 13 bankruptcy, however, you can wrap the cosigned debt into your repayment plan. This gives you the opportunity to pay the debt off during your case, so neither you nor your cosigner will have any further obligations to pay that particular debt.
Information about Chapter 13
If a Chapter 7 case will not work in your situation, you may be reluctant to file for Chapter 13 bankruptcy because you do not want to have payment obligations for three or five years. However, you should discuss the many benefits of Chapter 13 with an experienced bankruptcy attorney. The truth is that Chapter 13 bankruptcy helps many people each year address their overwhelming debt issues and move on with their lives in a much better position.
Chapter 13 filers are not simply vulnerable to whatever payment amount the court orders. There is the opportunity for your bankruptcy attorney to negotiate with the trustee to make sure your payment is fair in relation to your income. If you begin experiencing financial hardship during your repayment plan, your lawyer can request a modification of your payment plan. Your attorney will continue being your advocate throughout your entire case, working to ensure you receive a successful discharge. At the end of your Chapter 13 case, you will likely have addressed significantly more debt than you might have in a Chapter 7 case.
If for some reason, you cannot complete your repayment plan, all hope is not necessarily lost. Many people in this situation have the option to convert their case to Chapter 7, and your attorney can advise you of this possibility so you can still obtain some debt relief.
Consult with a Trusted Chapter 13 Bankruptcy Attorney in Atlanta Today
At the Cornwall Law Firm, we work with clients on both Chapter 7 and Chapter 13 cases. We can identify which type of bankruptcy is best in your situation and see your case through to its conclusion. If you would like to discuss your bankruptcy options, please call 404-791-4449 or contact us online for a free consultation.