Chapter 13 bankruptcy is a process where the debtor reorganizes their debt. It is different from a Chapter 7 in several ways. Primarily, Chapter 13 takes significantly longer and debts are repaid as opposed to discharged. There are numerous reasons why a debtor would file Chapter 13. However, you should consult an attorney before filing bankruptcy.
Reasons for Filing Chapter 13 Bankruptcy
The issues above help determine whether Chapter 13 bankruptcy is your best option.
How Does Income Affect Filling?
If you make too much money to file a Chapter 7, you will have to file a Chapter 13. During the bankruptcy reform of 2005, the courts made it much more difficult to qualify for Chapter 7 by creating threshold income requirements and the Means Test. If your income is more than the median income, you will be required to take the Means Test. The Means Test takes your monthly expenses, such as mortgage loans, car payments, taxes, insurance and child care among other expenses and places them in a formula that will determine whether you pass or fail the test. If you fail the Means Test, your only bankruptcy option is Chapter 13.
It is important that your income be sufficient if you want to file a Chapter 13 bankruptcy. You will be making monthly payments to the court and if you miss one, your case can dismissed immediately. Dismissal allows your creditors to collect from you again.
An important reason for filing Chapter 13 bankruptcy is protection of assets. Although a debtor may qualify for Chapter 7, their assets may not be fully exempt. Every state has their own exemption requirements which protects most major assets. Assets can include: vehicles, jewelry, boats, and even property in some situations.
A Chapter 13 bankruptcy allows the debtor to keep the asset by paying the value of the asset over time. In a Chapter 7, the assets would have to be paid off within a much smaller window. In a Chapter 13, the timeline can extend three to five years, which makes the monthly payment amount much easier for the debtor to handle.
Are You in Foreclosure?
Another reason to file a Chapter 13 bankruptcy is if you are facing foreclosure. Most debtors want to keep their home despite being in foreclosure proceedings. Chapter 13 allows debtors to keep their homes through mortgage mediation programs. These programs attempt to work out a solution for both the creditor and the debtor. The timeline for a bankruptcy also allows for the debtor to pay back the overdue balance owed on the mortgage, as the average Chapter 13 lasts three to five years. Chapter 13 will normally be the best option for any debtor who wants to save their home.
Debt Related to Taxes
If you owe the IRS money, there is a good chance that Chapter 13 bankruptcy is the best option for you. If your taxes are non-dischargeable under a Chapter 7, then you might want to consider a Chapter 13. The Chapter 13 process can potentially toll any interest owed during the bankruptcy, saving you a significant amount of money. In addition, you will have somewhere between three to five years to pay off the balance owed, making your monthly payments more affordable.
Call a Chapter 13 Bankruptcy Lawyer Today
Chapter 13 is a complicated process. Some would call it a minefield. A debtor should not attempt a bankruptcy without legal counsel. There is too much at stake in a Chapter 13 bankruptcy; your decision to file would affect your home, assets, and income.