Some Good Reasons To File Chapter 13 Bankruptcy

When it comes to filing bankruptcy, the vast majority of people file either Chapter 7 or Chapter 13 – two very different types of bankruptcy with little in common.

And when the choice is made, most people choose to file Chapter 7 instead of Chapter 13.

Why is that? Well, there are many reasons that people don’t file and even intentionally avoid Chapter 13 bankruptcy. A few of these reasons are:

• Chapter 13 is more expensive than Chapter 7.
• Chapter 13 takes a lot longer to complete than Chapter 7.
• Chapter 13 requires repayment of at least some unsecured debt unlike Chapter 7 which generally totally wipes out most unsecured debt.

Having said that, there are situations where Chapter 13 bankruptcy is a much better option than Chapter 7 bankruptcy.

And what’s more, some people who need to file bankruptcy don’t even have the option of filing Chapter 7 – they must file Chapter 13 or not file at all.

Here are some good reasons to file for Chapter 13:

You cannot file for Chapter 7. You won’t be allowed to file for Chapter 7 if you cannot meet some new requirements imposed by the new bankruptcy laws passed in 2005.  Under these new laws, you cannot file for Chapter 7 if both of the following are true:

• Your current monthly income over the six months prior to your filing date is more than the median income for a household of your size in your state.
• Your disposable income, after subtracting certain expenses and monthly payments for debts you would have to repay in Chapter 13, exceeds certain limits set by law. These calculations are commonly referred to as the “Means Test” — if you have the means to repay a certain amount of your debt through a Chapter 13 repayment plan, you flunk the test and are ineligible for Chapter 7 bankruptcy.

The Means Test can get fairly complex and to make matter worse, Congress has its own definitions of “disposable income,” “current monthly income,” “expenses,” and other important terms, which sometimes operate to make your income seem higher than it actually is.

In addition, if you have received a Chapter 7 bankruptcy discharge within the last eight years or a Chapter 13 discharge within the last six years, you are not eligible for another Chapter 7 discharge.

You are behind on your mortgage or car loan, and want to make up the missed payments over time and reinstate the original agreement. You cannot do this in Chapter 7 bankruptcy. You can make up missed payments only in Chapter 13 bankruptcy.

You have a tax obligation, student loan, or other debt that cannot be discharged in Chapter 7. You can include these debts in your Chapter 13 plan and pay them off over time.

You have a sincere desire to repay your debts, but you need the protection of the bankruptcy court to do so. This might be the case if creditors are coming after you, or if you simply require the formal structure and deadlines the Chapter 13 process provides in order to follow through on your good intentions.

You have nonexempt property that you want to keep. When you file for Chapter 7 bankruptcy, you get to keep only exempt property — property that is protected from creditors under state or federal law. You have to give your nonexempt property to the Chapter 7 trustee, who can sell it and distribute the proceeds to your creditors.

In Chapter 13, you don’t have to give up any property. Instead, you repay your debts out of your income. So, if you have nonexempt property that you can’t bear to part with, Chapter 13 might be the better choice.

You have a co-debtor on a personal debt. If you file for Chapter 7 bankruptcy, your co-debtor will still be on the hook — and your creditor will undoubtedly go after the co-debtor for payment. If you file for Chapter 13 bankruptcy, the creditor will leave your co-debtor alone, as long as you keep up with your bankruptcy plan payments.

If you are struggling with too much debt and aren’t sure whether Chapter 7 or Chapter 13 would be better for your specific situation, I’d be happy to talk with you and give you some good legal advice. Just fill out the Contact Dan form on the right side of this page, click on the Submit button, and I’ll get back with you as soon as I can. Or just pick up the phone and give me a call at 918-615-8260. I look forward to hearing from you.