One of the first decisions you’ll make when you file for bankruptcy is whether to choose Chapter 7 or Chapter 13. How do you know which is the better option?
The filing process begins with a means test. This determines if you even qualify you for Chapter 7, but even if you pass the means test, it might still be better to choose Chapter 13. Ideally, you’ll work with an attorney who can offer advice and help you make the best decision for you, but it can also help to have an understanding of the differences between the two types of bankruptcy before moving ahead.
One of the main differences between Chapter 7 and Chapter 13 is that in Chapter 7 debts are discharged and your case is over within four to six months, while in Chapter 13 you must make payments based on a pre-arranged plan which lasts three to five years.
Another difference between Chapter 7 and Chapter 13 is how property is handled. In Chapter 7 bankruptcy, the bankruptcy trustee can take your property, sell it, and use the liquidated funds to pay your debts. What many people are surprised to learn, though, is that it’s still possible to exempt property in a Chapter 7 filing. Just because you have filed for Chapter 7 does not mean you will lose all of the property you currently own. Chapter 13 is more lenient with protecting property, so if you have valuable non-exempt property you don’t want to lose, this is likely the way to go.
Should I File for Chapter 7 or Chapter 13 If I’m Behind on My Mortgage?
Mortgage loans often make up a significant portion of debt for the average American. And unfortunately, it can be one of the reasons you decide to file for bankruptcy.
Despite the myth that bankruptcy will cost you “everything,” you can actually keep possession of your home and continue living in it when you file, especially if you file for Chapter 13. In order to keep your home in a Chapter 7 bankruptcy, you’ll need to bring the debt current, keep it current, and likely reaffirm the debt when filing. Unless you’re able to meet these obligations, your bankruptcy trustee will be able to take your home.
In Chapter 13 your home is protected, even if you aren’t immediately able to bring the loan current. You’ll have the opportunity to roll past due payments into the repayment plan, making it easier to catch up. In most cases, homeowners opt for Chapter 13.
What If I’m Over-Extended on a Vehicle Loan?
In a Chapter 7 bankruptcy, you’ll likely lose a vehicle that’s behind in payments. In Chapter 13, you may have the option of “cramming down” the loan. This means you’ll reduce the amount you owe to whatever the vehicle is currently worth. That adjusted amount will be included in your repayment plan, which allows you to make payments and maintain ownership of the vehicle.
For more information on how to cram down a loan, check out this article.
I Don’t Want My Bankruptcy to Affect Other People
If someone else co-signed for a loan with you and you file for Chapter 7 bankruptcy, the lender can still pursue the co-signer, even if your responsibility for the debt has been discharged. If you are concerned about someone being held responsible for your debt, you’ll want to file for Chapter 13. It allows you to include that loan in your repayment plan and retain responsibility for it.
Choosing whether to file for Chapter 13 or Chapter 7 can be complicated and overwhelming. Having an expert to guide you through this initial decision can help. For more information or to speak to someone about filing for bankruptcy, contact the Law Offices of Robert M. Geller at 813.254.5696.