In some instances, people will be able to choose between Chapter 7 and Chapter 13 Bankruptcy. For others, they won’t have a choice and will be forced to file for Chapter 13 Bankruptcy. This means that instead of your debts being completely discharged, they will be reorganized so you can still repay them. This happens when you can’t pass the Mean’s Test and you in fact have the “means” to pay back your debts. Likewise, if you don’t have a steady income, your only choice is Chapter 7 Bankruptcy. Most people who have a choice will file under Chapter 7, but there are some instances when Chapter 13 bankruptcy will be the better choice.
Upper Income Filers Must File for Chapter 13
It’s simple, really. If your average monthly income during the six months prior to filing for bankruptcy is higher than the median income for California, you may not be able to use Chapter 7 bankruptcy. Additionally, if your disposable income is enough so that you can pay your creditors at least $166 per month over five years, you will have to use Chapter 13 bankruptcy.
Reasons to Choose Chapter 13
Although Ch 7 bankruptcy is easier and doesn’t require repayment, there are a lot of good reasons to file for Ch 13 bankruptcy even if you qualify for both. If you have the income to pay your repayment plan, it may make sense to go with Chapter 13 bankruptcy if any of the following applies to your situation:
- You are facing foreclosure or your car is being repossessed, and you want to keep your property. With Chapter 7, you will lose your property.
- You want to keep your car, but it’s worth much less than you owe. With Chapter 13 bankruptcy, you may be able to keep your car by paying its actual value in equal payments rather than the amount owed on the contract.
- Someone that has cosigned for one of your loans will be protected under Chapter 13 but not under Chapter 7 bankruptcy.
- You have a tax debt, student loan, or other non-dischargeable debt.
- You owe debts that can be wiped out with Chapter 13 bankruptcy but not in a Chapter 7. An example would be debts suffered to pay taxes.
- Chapter 13 may allow you to sue one or more harassing creditors under state and federal anti-harassment laws.
- You want to repay your debts but need bankruptcy protection to do so.
- You want to restore your credit quickly. Chapter 13 bankruptcy allows that to happen much faster than Chapter 7 Bankruptcy.
If you or any of your loved ones has questions regarding bankruptcy, give us a call for a free consultation.