Financial problems can bankrupt you. They could bury you deeper in debt, unable to pay both your arrears and your current bills. Oftentimes, the best solution to get you out of debt is to officially file for bankruptcy.
There are different types of bankruptcy. The bankruptcy code has a specific bankruptcy chapter for your situation. If you want to file personal bankruptcy, your choices would likely be Chapter 7 and Chapter 13.
Each chapter offers bankruptcy protection. If you prefer a quicker bankruptcy discharge, Chapter 7 might be the better choice. If you want debt reorganization and a more comprehensive bankruptcy, you might want to look further into Chapter 13.
Of course, it’s also a question of qualification. For instance, if your monthly income is too high that you have leftover disposable income after making your debt payments and taking care of your basic expenses, you won’t be eligible for a Chapter 7 bankruptcy. You may be allowed to file bankruptcy under Chapter 13, but you have to pay your extra income to the bankruptcy court for 36 months.
Why File a Chapter 13 Bankruptcy Petition
Chapter 13 bankruptcies run for up to five years while the Chapter 7 bankruptcy process only takes months to complete. Why would a debtor choose bankruptcy proceedings that last years over the quicker route?
- Chapter 13 is usually cheaper upfront
Attorney fees are considered dischargeable debt in a Chapter 7 bankruptcy case, so it only makes sense for bankruptcy lawyers to collect their fees before their client files for bankruptcy under Chapter 7. Meanwhile, the usual practice is for Chapter 13 filers to pay only a portion of their bankruptcy attorneys’ fees upfront since the rest of the amount could be included in the payment plan.
- Chapter 13 monthly payments tend to be lower.
Quick debt relief comes at a higher price. You may be paying less collectively, but you also have to consider what you can afford to pay monthly. The monthly payments in Chapter 13 bankruptcy cases are typically lower than those in Chapter 7, not only because the amount is spread out in longer payment duration, but also because there are provisions in Chapter 13 that allow debtors to pay a lower debt amount. For instance, Chapter 7 will require you to pay off your entire car loan debt even if the amount is higher than the actual value of the car. Meanwhile, Chapter 13 will require you to only pay what the car is worth.
- Chapter 13 has something called the “super discharge.”
There are certain debts that are non-dischargeable in Chapter 7 but are included in the much longer list of dischargeable debts in Chapter 13. These are different types of debt, including some taxes, government penalties and fines, debts involving embezzlement or fraud, and debts resulting from intentionally injuring property or another person.
- Chapter 13 gives you more time to pay your debts.
When people petition for bankruptcy under Chapter 13, they are able to buy more time to pay their debt. If you have arrears on your car loan or mortgage payments, you can propose a debt repayment plan that will be manageable for you. This means that it would allow you to catch up on your arrears and stay current with the rest of your debt as well. The plan is for you to pay back your debt in smaller installments, sending them to your bankruptcy trustee who will distribute them among your creditors. This debt settlement scheme, of course, only works if you also stay up-to-date with your other obligations; otherwise, you’ll stay in financial distress.
- Chapter 13 stops threats and attempts at foreclosure, repossession, or wage garnishment.
Bankruptcy filings lead to the occurrence of an automatic stay. This means that your creditors are compelled to stop all debt collection efforts, including garnishment, repossession, and foreclosure. While Chapter 7 cases also get an automatic stay, theirs only lasts for months. Chapter 13 automatic stay lasts for years. It gives you more time for debt management and general financial management so that your affairs are sorted by the time your case is closed, effectively eliminating any of the aforementioned threats.
- Chapter 13 lets you save property you want to keep.
A Chapter 7 bankruptcy may result in you losing some of your property. There are things you are required to give up and things that you are allowed to keep. These are the exemptions. Chapter 13 may allow you to save property not included in the exemption list by making you pay its value in monthly installments over the course of your bankruptcy duration. Make sure you review the exemption laws where you’re planning to file a bankruptcy petition because exemptions vary from state to state.
Get Legal Advice from a Mesa Bankruptcy Attorney Today!
It’s a little hard to keep so much bankruptcy information straight, so, if you’re having financial problems, consult a bankruptcy lawyer right away. Call us at Zolman Law and get proper guidance toward the right solution to your debts by talking to an experienced bankruptcy attorney.