First, Chapter 13 may be your only option.
Debtors must qualify to file Chapter 7. If you don’t qualify, then you must file Chapter 13. That is an easy one. If you qualify for Chapter 7, you might nevertheless want to file for Chapter 13 for the following reasons:
You want to repay your debt.
In Chapter 13, you will make monthly payments in your plan (from 3 to 5 years) to the bankruptcy trustee for the distribution to creditors (the people you owe). You must have enough disposable income to pay all priority and secured debt in full and to pay unsecured creditors in an amount at least equal to the value of the debtor’s nonexempt property.
Your home is getting foreclosed on.
Chapter 13 can stop a foreclosure. The automatic stay will stop any foreclosure action. In your Chapter 13 plan you will make your mortgage payment and catch up on any missed payments. You will pay the arrears
in your chapter 13 plan and your mortgage will go back to normal when your bankruptcy is over.
Your car is getting repossessed.
Chapter 13 can stop a repossession. You can catch up on your payments through the plan, much like a foreclosure. Also, if you purchased your car 2.5 years before you filed bankruptcy, then you may be able to lower what you owe on your car.
You want to keep your property.
In Chapter 7 you are only able to keep your exempt property. In Chapter 13 you can keep your non-exempt property in exchange for repayment of unsecured creditors in the amount equal to the value of the unexempt property you are keeping.
You have debts that are not dischargeable in Chapter 7. (see Ch.7 vs Ch 13)
Once a Chapter 7 is completed, normally 60 days after your meeting of creditors (341 meeting), your debt are discharged. However, some debts are not dischargeable, and you will still owe them. At that time, those creditors can come after you. If you are in a Chapter 13, you are protected for the life of the plan. Some debts that are not dischargeable in a Chapter 7 are student loans, taxes, home owner’s fees, marital settlement agreements, etc. Since you have to pay these debts, you may want to control them and pay them over time.
You have a co-debtor that you don’t want to throw under the bus.
Chapter 13 will protect your co-debtors for the life of the plan. So, if grandma co-signed for your car and you file chapter 7, then the bank can come after grandma as soon as you file. If you file 13 and have a 5-year payment plan, then grandma is protected for 5 years. You may want to sell property: If you want to sell property in bankruptcy (to keep away creditors), then 11 U.S.C. 1303 allows you to sell your property in a way that will generate the highest value. When receiving the highest price for the property is the best way for your financial situation, Chapter 13 can help you do that without the interference from creditors.
Freezing what you owe.
Even if you have to pay it all back, Chapter 13 allows you to stop the interest and late charges and actually pay down what you owe. When you are in Chapter 13 payment plan, any money that is paid to unsecured creditors will pay down what you owe since the claims are frozen as of the date of filing. This is true even for tax debts.
When facing bankruptcy, it is always important to talk to a bankruptcy attorney and discuss all the issues to make a decision. If you need a consultation, please feel free to call, email, or chat with us.