When would a Chapter 13 Repayment Plan be Better than a Chapter 7 Filing?

Consider Chapter 13 repayment plan options over Chapter 7 bankruptcy. If you qualify for Chapter 7 bankruptcy, it may be in your best interest to file for it, since it offers the most significant and fastest solution to overcoming debt. However, there are several situations when it could be the wrong route to take, particularly in situations where individuals could stand to lose more by filing Chapter 7.

When To Use Chapter 13

A Chapter 13 repayment plan is different than Chapter 7 bankruptcy in that individuals will spend at least three years, up to five years, repaying his or her debt. Most types of secured (except for the mortgage) and priority debts will be paid off through this payment plan. Some debts, including credit card and other unsecured debts, may be discharged in bankruptcy. Some will be repaid. It may seem like a long and bumpy road for getting out of debt, but in some situations, it is the best route to take.

• If you make more than your state's median family income for the year you are filing, you may not qualify for Chapter 7 bankruptcy. A means test will also help ensure you qualify.
• If you have substantial assets, you may need to file Chapter 13 if you plan to keep those assets. Most assets are not lost in this type of bankruptcy filing. However, if you were to file Chapter 7 bankruptcy, any assets not protected by exemptions would be seized, sold and the profits divided among creditors. Those with assets unprotected may wish to file Chapter 13.
• Those who have significant secured debt, such as car loans, may do better in Chapter 13 bankruptcy as well. In this process, the individual is able to repay his or her debt faster while working the plan. Also, in some situations, the lenders may be forced to work with the individual, if possible to catch up payments.

Making the decision to file Chapter 13 bankruptcy can be a difficult one. However, both forms of bankruptcy remain on your credit report for 10 years from the discharge date.

When to Hire an Attorney

Those who are facing financial difficult should speak to an attorney about the options available. A Chapter 13 repayment plan is something an attorney can help you to create so you know what to expect if you do file for this type of bankruptcy.  Find out what your options are from an attorney first.