Why Would Anyone Use Chapter 13 Bankruptcy Instead Of Chapter 7?

Posted on: 11 March 2016

Chapter 7 bankruptcy allows you to get rid of the debts you owe without repaying them, while Chapter 13 requires you to repay the debts you owe. This is a huge difference in the way each type works, which may make you wonder why anyone would choose Chapter 13 over Chapter 7 bankruptcy. Here are three good reasons that explain why people use Chapter 13 instead of Chapter 7.

They Do Not Qualify For Chapter 7

Some people do not choose to use Chapter 13 instead of Chapter 7; they use it because they do not qualify for Chapter 7. Chapter 7 can have a lot of benefits over Chapter 13, but when it is not a choice, Chapter 13 can also be quite beneficial.

To qualify for Chapter 7, you must pass the means test. To pass this test, you must be able to prove that you earn less income than the standard median income in your state. The median income is based on the amount of money you make and the number of people in your household.

They Are About To Lose Their Home

Even if a person qualifies for Chapter 7, this person might be better off choosing Chapter 13. A good example of a time when Chapter 13 would be better is if a person is about to lose his or her home due to foreclosure. Chapter 7 can temporarily stop the foreclosure proceedings, but it does not typically offer a way for a homeowner to get caught up on the payments he or she is behind.

Chapter 13 allows a person to come up with a repayment plan that will allow the person to keep his or her home.

Most Of Their Debts Do Not Qualify For A Discharge

The third thing to consider in this decision is the type of debts a person has. There are many debts that can be discharged, or forgiven, during a Chapter 7 case, but there are many types that cannot be. These types are called priority debts, and they include back taxes, alimony, and child support.

If most of the debts a person has do not qualify for a discharge, Chapter 7 would not be of any help. Chapter 13 would be a good option, though, because it would allow the person to get on a repayment plan that would eventually help the person become current on all his or her debts.

If you are considering filing bankruptcy and are not sure if it the right route to take, contact a bankruptcy attorney in your area. You can sit down and discuss your situation with a bankruptcy attorney to find out what would be the best way for you to get out of debt.