How Does Chapter 13 Bankruptcy Work?
- What is the benefit of a Chapter 13 bankruptcy filing?
- What can a Chapter 13 bankruptcy provide that a Chapter 7 filing can’t?
- How can an attorney help me in my Chapter 13 bankruptcy case?
What Is A Chapter 13 Bankruptcy?
Chapter 13 bankruptcy is most often used by homeowners. In addition to the benefits this Chapter provides, many filers will participate in the U.S. Bankruptcy Court’s Loss Mitigation Program. This allows you to obtain a modification of your mortgage in order to save your home from foreclosure. (Through this process, you repay the arrears over five years.)
Other common uses for Chapter 13 Bankruptcy are used by people who are looking to:
- Lawfully repay child support arrears and avoid imprisonment.
- Lawfully repay priority tax arrears and other debts that cannot be discharged in chapter 7 over a five-year period.
- Access a repossessed vehicle and deal with the vehicle’s creditor through a repayment plan.
- Create a debt reorganization plan. (This is typically beneficial for individuals who do not qualify for relief under Chapter 7 because their income is too high.)
What Type Of Debt Is Typically Dischargeable In A Chapter 13 Bankruptcy?
Many people wonder why you might choose to file for Chapter 13 Bankruptcy. Especially since any debt that can be discharged in Chapter 7 is discharged in Chapter 13.
Chapter 13 filings include the discharge of some debts not included in a Chapter 7 filing. This can include:
- Debts for willful, malicious injury to property,
- Debts incurred to pay non-dischargeable tax obligations, &
- Debts arising for property settlements in divorce or separation proceedings.
What Assets Will I Be Able To Keep In Chapter 13 Bankruptcy?
Chapter 13 bankruptcy exemptions are the same as Chapter 7 exemptions. However, unlike a Chapter 7 filing, Chapter 13 allows a debtor to pay out their liquidation value over five years.
This means that, for example, if a debtor holds an asset with $6,000 of non-exempt value, the debtor can pay that $6,000 to the trustee over a five-year period. In a situation such as this, a Chapter 13 plan can allow you to keep an asset that you would otherwise lose.
Will I Lose Any Assets In A Chapter 13 Filing?
Losing your assets is a major concern for anyone considering bankruptcy. Luckily, almost all chapter 13 plans provide for the debtor to keep their assets.
What’s more, you can withdraw your Chapter 13 case at any time – meaning there’s no risk of losing your assets. Should a trustee determine that a certain asset is worth more than you value it and you disagree about the valuation, and the court determines that it’s worth more, you can simply withdraw your case.
It’s important to note: When it comes to repossession and liquidation of assets in Chapter 7 and 13 filings – there is a crucial distinction to be aware of.
In a Chapter 13 filing, no asset will be repossessed or liquidated by the court. In a Chapter 7 filing, on the other hand, this is not the case.
While you can withdraw a Chapter 13 case at any time, a Chapter 7 trustee can liquidate your non-exempt assets by force, if necessary. This important distinction between Chapter 13 and Chapter 7 filings is something you should consider and discuss with your bankruptcy attorney.
Should I File A Chapter 13 Or A Chapter 7?
So many people wonder which Chapter of bankruptcy will provide them with the best results and the most protection. The truth is, each bankruptcy case is as unique as you and your goals are.
In certain situations, Chapter 13 can be better than Chapter 7. But in the majority of situations, chapter 7 is the best choice.
However, while Chapter 7 filings provide a fresh start in a very short period of time, Chapter 13 filings provide you with certain options that aren’t available in Chapter 7 cases.
Speaking with an experienced bankruptcy filing attorney is the best way to determine what course of action will be the best choice for you.