Four times when Chapter 13 should be filed over Chapter 7

If you are in debt and considering bankruptcy, you may have already heard a significant amount about Chapter 7 and the quick discharge of debt that it offers. As a result, you may wonder when its counterpart, Chapter 13, would be beneficial. Put simply, if you are in one of several situations, Chapter 13 is likely the better way to address your debt problems.

Your mortgage is overdue

If you have been unable to keep up with your mortgage, Chapter 13 is probably the better choice, as it gives you extra time to catch up on in. During this type of bankruptcy, your overdue mortgage debt becomes part of the payment plan. Under the plan, you have three to five years to catch up on the overdue balance using affordable monthly payments. As long as you continue making the agreed payment each month, the law protects you from the threat of foreclosure.

This is a significant benefit over Chapter 7. During Chapter 7, if you do not become current on your mortgage rather quickly (a couple of months) and stay current, your lender may foreclose on your home.

You have non-dischargeable debts

If you owe a significant amount of debts that cannot be discharged in bankruptcy, like taxes, student loans, alimony or child support, Chapter 13 can be beneficial over Chapter 7. The reason for this is that, like overdue mortgages, these debts become part of the payment plan, giving you three to five years to become current on them or pay them off. As long as you make the payment each month, you are protected against further collection actions concerning these debts, including garnishment, lawsuits and collection calls.

You wish to keep nonexempt property

If you own assets that are nonexempt that you want to hold on to, Chapter 13 can allow you to accomplish this. This type of property may include second homes, multiple motor vehicles, cash or luxury items. In Chapter 7, this property is sold in the liquidation sale. However, in Chapter 13, there is no sale, so you can keep all your pre-bankruptcy property, provided that you fulfill you obligations under the payment plan.

You owe a debt with someone else

If you have debts owed with a codebtor, Chapter 13 is definitely the better choice. If you file Chapter 7, it is highly likely that your creditors will go after your codebtor for payment of the debt. However, Chapter 13 will protect your codebtor against this possibility, as long as you keep up with your plan payments.

Consult an attorney for help

In reality, your choice of the type of bankruptcy to file is a very important one that can determine your future success or failure. To ensure that you make the correct decision, it is important to consult with an experienced bankruptcy attorney prior to filing. An attorney can analyze your situation and recommend the debt relief solution that would most likely result in a successful resolution of your debt problem.