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Why Choose Chapter 13 bankruptcy Over Chapter 7 bankruptcy

For some people, Chapter 13 bankruptcy can be a better option than Chapter 7 bankruptcy.

You should fully explore the benefits of Chapter 13 before deciding to proceed with Chapter 7.  Many people assume that Chapter 7 bankruptcy is better than Chapter 13 bankruptcy because Chapter 7 does not require that you make any payment to your creditors. Most of the time this is a safe assuming, but there are some exceptions to the rule. Read on to learn about when Chapter 13 might be a better option for you.

Are You Eligible for Chapter 7?

Not everyone is eligible for relief under Chapter 7.  For such debtors, Chapter 13 is their only option. You will not be eligible for Chapter 7 relief 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.
  • 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”,  Basically, if you are able to repay your creditors, then the law requires that you do so for at least three years.  To determine whether you pass the means test, contact an attorney now.

In addition, there are other Chapter 7 eligibility criteria, including, but not limited to, whether you have received a chapter 7 discharge in the last eighty ears or a chapter 13 discharge within the last six years.

Reasons Chapter 13 Might be Better Than Chapter 7

Although Chapter 7 might seem like the best option, there are some reasons that Chapter 13 may be in your best interest.

1.  You owe tax, student loans or other nondischargeable debt which you can’t service outside of bankruptcy.  By filing for chapter 13 you can pay these debts over three to five years, reducing the monthly payment to a manageable amount.

2. You want to keep your house or car, but can’t cure the arrearage outside of bankruptcy.  Chapter 13 allows you to pay the amount you have fallen behind over a period of 3 to 5 years.  This often makes it possible for a person to keep their house and car without breaking the bank.

3.  You have property that a Chapter 7 trustee would sell if you were to file Chapter 7.  By filing Chapter 13, you get to keep your property and pay your creditors over time, rather than being subject to a forced liquidation.

4.  You have more than one piece of real property and you would like to reduce the secured mortgage down to the value of the collateral.

5. You have a second or third mortgage against your residence which is fully unsecured.  In chapter 13 in Virginia, you can strip off a fully unsecured mortgage on your residence.  This is a major advantage to filing chapter 13 here in Virginia.

To learn more about your legal options, contact The Callan Law Firm, P.C. to speak with an attorney.