how Chapter 13 Bankruptcy Is Better Than Chapter 7

When it comes to bankruptcy filing there is a tendency for most debtors to choose Chapter 7 over Chapter 13. Most debtors believe that a Chapter 7 is easy to deal with as it wipes out the debts while in Chapter 13 a debtor needs to pay back some portion of the debt. Also a Chapter 7 case is usually opened and closed in less than six months compared to a Chapter 13 filing which may go up to 5 years. However using this logic may not always be the smartest thing to do as Chapter 13 does have its advantages over Chapter 7 and here we shall discuss these in this write-up.

Intentions of Repaying

If you have sincere desire to repay your debts but need the extra bit of protection from the creditors and their agents you should file for a Chapter 13 bankruptcy as it gives you all the necessary protection to pay back the debt as per your convenience. Chapter 7 doesn’t let you do this as immediately after you have filed for it your assets are liquidated to pay back your debts. This can severely affect you in the long run.

Tax Obligation/Student Loan

If you have a have a tax obligation or a student loan these cannot be discharged in Chapter 7. In fact state tax authorities can levy your bank accounts or target your wages. If you are filing under Chapter 13 you can include all these debts and pay them over a period of time which is convenient to you. Thus Chapter 13 proves to be beneficial over Chapter 7 when it comes to filing for bankruptcy with student loan and tax obligations.

Property Rights

One of the biggest advantages of Chapter 13 over Chapter 7 of bankruptcy filing is to do with the rights of the property. If you own non-exempt property such as a house, a boat or a vacation cottage you can keep hold of them once you file for bankruptcy using Chapter 13. In such a case your plan has to pass the “Chapter 7 liquidation test”. This means that you must pay your creditors the least amount of money that they would have got in Chapter 7 liquidation and enjoy rights over your property.

Car Loan

If you have fallen behind in repaying your mortgage or car loan and want to avoid the lender from repossessing your vehicle you can make use of Chapter 13 filing. Under this plan you won’t be required to make payments as agreed upon in the original agreement. Rather the payment would be determined by what you need to pay in the new chapter 13 plan. Here the payment is made to a trustee who in turn disburses the allotted funds to the lender.

CoDebtor

There are often occasions when we have a co-debtor (mostly friends and family members). If you are filing Chapter 7 the creditors can go after your co-debtor to recover their dues. This bankruptcy chapter provides no relief to the codebtor. You can avoid such an unpleasant situation by filing under Chapter 13 as the codebtors are exempted from kind of collection as long as you keep up with the payment terms agreed upon. These are some of the situations in which filing for Chapter 13 proves to be advantageous over Chapter 7 filing. It is advisable that you consult a professional bankruptcy attorney while filing as he or she will guide you through the process and ensure maximum protection and exemptions for you as permitted under the state and Federal law.

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