Chapter 13 Bankruptcy

The most common reasons for filing a Chapter 13 bankruptcy include: 1) You make too much gross income to file a Chapter 7 bankruptcy; 2) You have already filed a Chapter 7 bankruptcy within the last 8 years; 3) You want to save your home from foreclosure and you can make up the mortgage arrears within the next 3 to 5 years; 4) You owe back taxes;  and 5) You have tickets and/or fines that resulted in your driver's license being suspended and you need a driver's license. For some debtors, filing a Chapter 13 bankruptcy is a better option than filing a Chapter 7 bankruptcy. But, sometimes Chapter 13 is your only option. It is important to sort out the issues and decide which form of bankruptcy is best for you. Many debtors assume that a Chapter 7 bankruptcy is better than a Chapter 13 bankruptcy because a Chapter 13 requires debtors to repay a portion of their debt over 3 to 5 years, whereas a Chapter 7 bankruptcy discharges / deletes most of your debts. However, this is not always the case.  

 

If you have had a consultation with an attorney and he/she suggested that you should file a chapter 13 bankruptcy, but you are not exactly sure why you have to file a chapter 13, you may want to give our office a call and get a second opinion. You may not have to file a chapter 13 at all. There are a few reasons why another attorney may suggest a Chapter 13, however, filing a Chapter 13 may not be necessary. Why pay an attorney $4,000.00 in attorney fees and pay creditors over three to five years when you do not have to? If you would like a second opinion, please call our office for a free consultation at (509) 326-5160 or book an appointment online.

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reasons to file a Chapter 13 bankruptcy

 

1) You Cannot file for Chapter 7 Bankruptcy

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Some debtors cannot file a Chapter 7 bankruptcy, which leaves a Chapter 13 as their only option. You cannot file for Chapter 7 if both of the following are true:

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• Your average gross monthly income (before taxes and deductions) over the six months prior to the month of your filing date is more than the median income for a household of your size, in your state. Click here to see whether your median income allows you to file a Chapter 7. 

 

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. 

 

There are a few other eligibility criteria for filing for Chapter 7. For example, you cannot get another Chapter 7 discharge if you have received a Chapter 7 bankruptcy discharge within the last eight years, or a Chapter 13 discharge within the last six years.

 

2) Filing Chapter 13 May Be Better Than a Chapter 7

 

Even if you are eligible for a Chapter 7 bankruptcy, there are some situations when filing a Chapter 13 may be more advantageous than filing a Chapter 7.

 

• Your home is in foreclosure because you are behind on your mortgage payments and you want to get caught up on the missed payments over time and reinstate the original agreement. You cannot do this in a Chapter 7 bankruptcy. However, you can make up the missed payments in a Chapter 13 bankruptcy.

 

• You have tax obligations, student loans, or other debts that cannot be discharged in a Chapter 7. You can include these debts in your Chapter 13 plan and pay them off over 3 to 5 years.

 

• 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 bankruptcy trustee, who can sell it and distribute the proceeds to your creditors. In Chapter 13, you do not have to give up any property. Instead, you repay your debts out of your income. So, if you have nonexempt property that you cannot bear to part with, Chapter 13 might be the better choice.

 

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