Bankruptcy is a big decision and it’s the first of a few you’ll make when you decide to file. Choosing which type of bankruptcy – Chapter 7 or Chapter 13 – will be one of the most important choices you’ll make during the process.
In general, Chapter 7 is right for those without any assets. Chapter 13 is better for people who are experiencing financial challenges but have assets they want to protect. Chapter 13 sometimes called “wage earners bankruptcy” because in order to qualify you’ll need to have an income for making payments toward your debt. It provides many of the same protections available in Chapter 7, but it doesn’t eliminate your debt in the same manner.
Many people assume filing for bankruptcy will wipe out their debts through a court discharge, but this isn’t the case with Chapter 13.
Unfortunately, not everyone qualifies to have their debts discharged. When you decide to file, you’ll be subjected to something called the Means Test. In order to qualify for Chapter 7, you’ll need to score appropriately on the test. Those who don’t qualify for Chapter 7 will likely have the option of filing for Chapter 13.
For more information about the means test, check out this information from the US Court System.
Another reason people choose Chapter 13 over Chapter 7 is that they don’t want to put their assets at risk. If you own a home or anything else you want to retain control over, Chapter 7 is not for you.
In Chapter 7 bankruptcy, your assets are liquidated and the money is used to pay your creditors. There are certain assets you can protect in Chapter 7, but the protection doesn’t extend as far as it does in Chapter 13.
Chapter 13 is a better option for those who have assets and income. It provides protection and flexibility and gives you time to make payments on past due debts without penalties. It can also extend the time you have to pay debts that wouldn’t be discharged in Chapter 7 and prevent further penalties, such as tax debts and past due child support.
Many people consider Chapter 13 the best of both worlds – you are given time and space to breathe financially, but you are still committed to paying your debts.
Many people considering bankruptcy wonder if they can just handle things on their own. After all, many creditors are willing to arrange a payment plan and not take legal action.
Unfortunately, by arranging your own payment plans, you’re missing out on many of the protections of bankruptcy. Creating a payment plan with a creditor doesn’t mean you’ll avoid legal action, especially if you’re late on a payment. It’s still possible for a creditor to put a levy on your bank accounts or confiscate property from you. Not to mention you’ll be the one negotiating the details of the payment arrangement – or arrangements – and creditors will be reluctant to make the terms favorable for you without the power of an attorney or the bankruptcy court behind you.
Chapter 13 bankruptcy helps you create a payment plan that’s manageable for you and ensures you have legal protection. Creditors are legally obligated to abide by the payment plan, even if they don’t want to because of the power of the court supporting you.
You hold up your end of the bargain in Chapter 13 and the court will make sure creditors accept the terms.
To figure out if Chapter 13 is your best option, ask yourself:
• Will my debts be discharged in a Chapter 7 filing?
• Am I behind on mortgage or car payments?
• Are my assets worth more than the exemptions provided in Chapter 7?
• Would the income I earn cause creditors to object to a discharge?
• Are there any liens on my property?
Figuring out whether Chapter 13 is right for you can be complicated. Working with an attorney makes it easier and allows you to review your circumstances with a professional.
For more information or to schedule a consultation to discuss your bankruptcy options contact R. Flay Cabiness, II, P.C. at (912) 554-3774 (Brunswick, GA); (912) 375-5620 (Hazlehurst, GA) or; (912)-554-3756 (Jesup, GA).
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