Thursday, December 15, 2016
Is Chapter 7 Or Chapter 13 Bankruptcy Better?
When you have more debt than you can pay, finding a way out will give you peace of mind and relieve the anxiety associated with drowning in too much debt. Some options include refinancing, asking for lower rates or a restructuring of your payment plan, and even bankruptcy. For consumers, there are two main types of bankruptcy cases and each one offers valuable benefits. A Chapter 7 case is a liquidation of all your debts, meaning the debts you have are wiped out entirely unless you decide to keep making the payments. A Chapter 13 is a reorganization of your debts, into a repayment plan that fits within your budgetary restrictions.
But which type of case is better, or is there a preference among those who file for bankruptcy? Most everyone who has considered filing wants to file a Chapter 7, but that does not make it the best choice or even the better choice. What works for your neighbor may not work for you, so it is important to understand the differences between Chapter 7 and Chapter 13 bankruptcy cases. Some of those differences include:
● The time it takes to complete a case: Chapter 7 cases are generally over in 4 to 6 months, and Chapter 13 cases can take up to 5 years to complete.
● Which debts are to be repaid: all unsecured debts are dischargeable in a Chapter 7, but in a Chapter 13 the debtor pays back some percentage of their unsecured debt. The percentage you will be asked to repay depends on the outcome of the means test, which is a mathematical computation that is performed prior to filing. The means test examines your income as it relates to the total amount of secured debt you have, and if there is any income left over after paying all of your secured debt you will be expected to file a Chapter 13 case and put that extra money towards repayment of part of your unsecured debts.
● How car and home loans are handled: in a Chapter 7 if you want to keep your car and your house, you will need to reaffirm those debts. This means you will sign a document called a reaffirmation agreement, and that document acts like a new contract for the debt. Once your case is over, any debts you have reaffirmed will still be due. In a Chapter 13 if you want to keep these things you can do so by providing for repayment of the debt in your Chapter 13 Plan, and can even pay less than what you owe on your car with the balance being discharged. For repayment of home loans in a Chapter 13, if you are behind you can pay back those past due payment over several months during your plan. These features of a Chapter 13 are unique, and not available in a Chapter 7.
Which type of case you prefer will depend on your particular circumstances, and whether you have filed a prior bankruptcy. To find out more, call our office for a review of your case.
If you have more questions about bankruptcy or need help deciding what to do about overwhelming debt, contact us at www.law-ri.com. We will help by coming up with solutions that work for you and have multiple locations to meet your needs for office visits.