Bankruptcy clients often have a difficult time determining which chapter to file under. The Chapter 7 is the most commonly considered type of bankruptcy. It is faster, cheaper, simpler, and the entire case is usually concluded within months. However, for some people, there are many advantages to filing a Chapter 13 Bankruptcy, even if eligible for a Chapter 7.
First, the debtor and his or her attorney must determine if the debtor is eligible to file for a Chapter 7. The 2005 law changes included a means test, that requires the debtor to determine eligibility to file for a Chapter 7. Our office can help you understand the means test and determine if you qualify.
One consideration is that voluntary retirement contributions and retirement loan repayments are deductible in a Chapter 13, but not in a Chapter 7 case when determining disposable income.
Another consideration is eligibility for a discharge. If the debtor filed a bankruptcy within the last eight years, the debtor cannot receive a Chapter 7 discharge, but can receive a Chapter 13 discharge so long as it has been at least four years since filing for a bankruptcy that resulted in a discharge.
The debtor must also determine if it is likely that he or she will incur additional debts in the near future. A Chapter 13 may be voluntarily dismissed by the debtor much more easily than a Chapter 7, allowing the case to be refilled to include subsequent debts if necessary.
A Chapter 13 allows a debtor to retain a vehicle without reaffirming the debt. The problem with reaffirming a debt in a Chapter 7 case is that the debtor may be responsible for the deficiency if the vehicle is later repossessed, or totaled in an accident when the vehicle has negative equity.
Many debtors have assets that exceed the permitted exemptions. Filing a Chapter 13 provides an opportunity for the debtor to keep un-exempt assets.
Debtors that own a sole proprietorship should strongly consider a Chapter 13, which would allow for the continued operation of the business with much less interruption and interference than would result from a Chapter 7 case.
Certain non-dischargeable debts are more easily handled in a Chapter 13 case, including non-dischargeable taxes, secured debts, real property arrearages, etc.
Finally, in many cases we can assist the debtor in stripping off second or third mortgages on real property, and/or cramming down the amount that must be paid on a vehicle to the value of the vehicle, not the greater amount still owing on the loan.
On the other hand, Chapter 13 cases cost more, though the additional cost is generally paid through the bankruptcy plan. There is additional paperwork and the case remains open for years, not just months.
If you are considering bankruptcy, and would like to learn more about a Chapter 7 or Chapter 13 case, please call us today for a free initial consumer bankruptcy consultation, or attend one of our upcoming free bankruptcy seminars. To learn more, visit us at www.McGuireGardner.com or www.freearizonabankruptcyseminar.com