No one wants to declare bankruptcy, but when there is no other choice, individual debtors must examine whether or not a Chapter 7 or a Chapter 13 bankruptcy will best serve their needs.
- Chapter 7 is for those who have no means to pay back any of their debts; a Chapter 7 will discharge most unsecured debts.
- If your income is greater than the median income in your state, and/or you have disposable income to repay debt, you may not qualify for Chapter 7.
- By far, most individual bankruptcies filed are Chapter 7.
- Filing a Chapter 7 bankruptcy gives you immediate relief from creditors.
- Typically, your debts will be discharged in between three to five months.
- Most debt, such as credit card debt and medical bills, is dischargeable. There are some exceptions known as non-dischargeable debt. These include child support, taxes and student loans.
- Some property is exempt, and you can keep it. Other property is nonexempt and the bankruptcy trustee can sell it to help pay your debts. Ask your attorney to discuss details of what property you will be able to keep. Most chapter 7 bankruptcies wrap up with people keeping most, if not all, of their assets.
- Chapter 13 is a reorganization for those with regular income who can repay at least some of their debts.
- You may be able to reduce the amount you must repay in Chapter 13, but you will be put on a payment plan
- To qualify for Chapter 13, you must owe under $394,725.00 in unsecured debt and under $1,184,200.00 in secured debt.
- Your liability to creditors is discharged when the payment plan ends.
- Payment plans usually span three to five years.
- Payments are made monthly to the bankruptcy trustee.
So why wouldn’t you just opt for Chapter 7 and get a clean start? It really all depends on your individual situation. There are very good reasons to opt for a Chapter 13 in many cases.
Some Advantages of a Chapter 13 Bankruptcy over a Chapter 7
A Chapter 7 bankruptcy will show on your credit records for up to 10 years from the date you file. A Chapter 13 bankruptcy will show for seven to 10 years. However, some creditors look more favorably on Chapter 13 than they do Chapter 7.
You Want to Keep Property You Would Lose under Chapter 7
Under Chapter 7, you can keep some property which is considered exempt. However, some property can be nonexempt, and the bankruptcy trustee can sell it in order to help pay your debts. Under Chapter 13, you can set up a payment plan that will enable you to keep nonexempt property.
You Want to Pay Debts You Cannot Discharge by a Convenient Schedule
Some debts, such as student loans, are not dischargeable under Chapter 7 or Chapter 13. Chapter 13 may offer options for an easier repayment schedule over time.
You Want to Stop Creditors from Repossessing Your Car
If you file Chapter 13, you can arrange to repay the amount you owe the creditor holding title to your car under the Chapter 13 payment plan. It’s possible the amount of your car loan may even be reduced if your car is at least two years old, and you owe more on it than it is worth.
You Want to Stop the Bank from Foreclosing on Your House
If you file a Chapter 7 bankruptcy, you will probably be able to keep your home if you are up to date on your mortgage payments. However, if you have substantial equity that can be used to pay your unsecured creditors, there is a chance you could lose your house under Chapter 7.
If you file a Chapter 13, even if you are delinquent on your payments, you may be able to save your home by repaying the delinquent payments over time under the Chapter 13 payment plan. There are some exceptions to this which should be discussed with your bankruptcy lawyer in Los Angeles.
If you think you may be facing bankruptcy, call Vokshori Law Group, leading bankruptcy and loan modification firm in Los Angeles at 855.855.2608 for a consultation or visit www.VokLaw.com for further information. We can discuss all your options, and help you decide if bankruptcy is the best choice.