Sometimes it makes
sense to file for Chapter 13 bankruptcy instead of
Chapter 7 bankruptcy.
Many debtors choose
not to file for Chapter 13 bankruptcy because it
requires repayment of at least a portion of their
debts (unlike Chapter 7 bankruptcy, which wipes out
many debts entirely ).
In some situations,
however, Chapter 13 bankruptcy is the better bankruptcy
option. Not only that, but certain debtors don't
get to choose: Not everyone is eligible for Chapter
7 bankruptcy, so Chapter 13 will by the only option
available to some filers.
Here are some good
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 new 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,www.usdoj.gov/ust, 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. (For more information, including a link to an online
calculator you can use to see whether you pass the means test,
seeThe Bankruptcy Means Test: Is Your Income Low Enough for Chapter
7 Bankruptcy?)
The means test can
get fairly complex -- and, to make matter worse,
Congress has its own definitions of "disposable income," "current monthly income," "expenses," and other important terms, which sometimes operate to make your income seem
higher than it actually is. You can find step-by-step
instructions to determine if you qualify for Chapter
7 under these new rules in How to File for Chapter
7 Bankruptcy, by attorney Stephen Elias, attorney
Albin Renauer, and Robin Leonard, J.D. (Nolo).
In addition, 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.
You are behind on
your mortgage or car loan, and want to make up the
missed payments over time and reinstate the original
agreement. You cannot do this in Chapter 7 bankruptcy.
You can make up missed payments only in Chapter 13
bankruptcy.
You have a tax obligation,
student loan, or other debt that cannot be discharged
in Chapter 7. You can include these debts in your
Chapter 13 plan and pay them off over time.
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 nonexempt
property that you want to keep. When you file for
Chapter 7 bankruptcy, you get to keep only exempt
property -- property that is protected from creditors
under state or federal law. You have to give your
nonexempt property to the bankruptcy trustee, who
can sell it and distribute the proceeds to your creditors.
In Chapter 13, you
don't have to give up any property. Instead, you
repay your debts out of your income. So, if you have
nonexempt property that you can't bear to part with,
Chapter 13 might be the better choice.
You have a codebtor
on a personal debt. If you file for Chapter 7 bankruptcy,
your codebtor will still be on the hook -- and your
creditor will undoubtedly go after the codebtor for
payment. If you file for Chapter 13 bankruptcy, the
creditor will leave your codebtor alone, as long
as you keep up with your bankruptcy plan payments.
|
