Reasons To File Chapter 13 (instead of Chapter 7)
In certain situations, the benefits of filing for relief under Chapter 13 bankruptcy will be the best solution. Many individuals choose not to file for Chapter 13 because it requires repayment of a portion of their debts and involves a three to five year commitment. Regardless of any advantages or disadvantages, sometimes an individual filing for bankruptcy will not be given the option to choose. Quite simply, not everyone is eligible for Chapter 7, so that Chapter 13 will be the only option available.
Here are some 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 requirements imposed by the 2005 revisions to the bankruptcy law. Under these new rules, 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 (go to the website of the United States Trustee and click "Means Testing Information" to see the median figures for 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 quickly get very complex to complete -- and, to make matters worse, Congress provided its own complicated definitions for certain terms or phrases such as "individual with regular income" and "current monthly income," and "disposable income," which at times could make one's income seem higher than it actually is.
TO REVIEW THE "MEANS TEST" FOR YOUR INCOME AND EXPENSES… Contact Attorney Brian J. Tyler…
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 may not file for Chapter 7 bankruptcy. If a prior case was filed under Chapter 13 case, the bar for refilling under Chapter 13 is reduced to two years.
You are behind on your mortgage, car loan, or other secured obligation and want to make up the missed payments over time. You cannot do so in Chapter 7 bankruptcy. Provided you resume and maintain regular payments once your file Chapter 13, you can make up all missed payments, through your Chapter 13 plan. This also is applicable to delinquent property taxes—you can cure any unpaid property taxes over time through a Chapter 13 plan.
You have a tax obligation, child support or alimony, or other debt that cannot be discharged. Under Chapter 7, which is a short process, creditors with non-discharged claims will generally begin collections immediately after the discharge as to other debts is entered in the case. These debts can be paid over an extended period of time through a Chapter 13 plan.
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 non-exempt property that you want to keep. Under Chapter 7 bankruptcy, you get to keep only exempt property. To the extent you have equity in real or personal property greater than the allowed exemptions, the Chapter 7 Trustee appointed to your case would sell the non-exempt property, and after payment of costs and a commission for the Trustee, the proceeds would be share among your creditors.
Under Chapter 13, no property is ever taken by the Trustee to be sold. Instead, you are able to repay that amount by which you exceed the allowable exemptions over a period of years out of your income and retain all property. So, if you have non-exempt property and cannot part with it, Chapter 13 might be the best choice.
You have a co-signer on a personal, consumer debt. If you file for Chapter 7 bankruptcy, your co-signer will still be on the hook -- and your creditor will undoubtedly go after the co-signer for payment. Under a Chapter 13 bankruptcy, your plan can propose to pay co-signed consumer obligation in full, as a separate class from all other general individual debts. In doing so, the creditor is "stayed" and may not collect from your co-signer as long as you keep up with your Chapter 13 bankruptcy plan payments.
The balance owed on secured debt exceeds the current value of the collateral you might be able to modify the terms of that obligation and repay just the current value, together with reasonable rate of interest, over the three or five years of the Chapter 13 plan. As an example, presume you purchased a used vehicle three years prior to filing for Chapter 13 bankruptcy relief. The current value of the vehicle is $5,200.00, and you have two years of payments remaining on the five year loan, and the balance of the loan is $7,800.00 and the interest rate is 7.99%. You could modify this obligation to pay the lien holder, through the Chapter 13 plan, the $5,200.00 a lowered interest rate of prime plus a factor of 1, 2 or 3. The ability to "cram down" a secured creditor's claim was significantly limited by the 2005 amendments. A "cram down" of any motor vehicle acquired for personal is limited to debts incurred more than 910 days prior to the filing of the bankruptcy case, and 1 year for all other collateral.
To learn more about Chapter 13 bankruptcy and the ways it can benefit you, talk to a lawyer. Contact the Law Offices of Brian J. Tyler in Harrisburg, Pennsylvania.
