For individuals seeking debt relief a chapter 13 bankruptcy can be the best and sometimes the only option. But, there are several caveats that all debtors should know before even considering filing a chapter 13 bankruptcy. This article will first, briefly go over, the differences between Chapter 7 and 13 bankruptcy and will then go into why you should be wary bout filing a Chapter 13 bankruptcy.
A chapter 13 bankruptcy and a chapter 7 bankruptcy differ greatly. Under a Chapter 7 bankruptcy, the debtor will not have to pay the majority of his debts. So, absent certain statutory exceptions, once a chapter 7 bankruptcy is filed and approved by the Bankruptcy Court, the debtor will be able to get a fresh financial start on his life.
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On the other hand, chapter 13 bankruptcies take three to five years to be finalized. With a Chapter 13 bankruptcy you are set on a payment plan that lasts three to five years. A payment plan basically means you have to pay your creditors, a set amount, every month for three to five years. After the three to five years are finished, you will then receive a discharge for your debts.
One problem with filing a Chapter 13 Bankruptcy is that the completion rate for a chapter 13 plan, is very low. For example, in my home town, Las Vegas, chapter 13 bankruptcies are only completed approximately 35% of the time.
In conclusion, the majority of people who file a Chapter 13 are doomed to failure. So, the only time you should file a Chapter 13 bankruptcy is under the following situations:
1. You are behind on your mortgage, you want too keep your house and you are not eligible for a loan modification. A chapter 13 only allows you keep your house. Also, with a Chapter 13 bankruptcy you can strip off the second mortgage. Also, federal loan modification programs only work for owner occupied houses. So, filing Chapter 13 maybe your only chance save investment properties that you may own.
2. You make too much money. Under a Chapter 7, BACPA regulations, the debtor is required to pass a means test. The means test states, roughly, that you can only declare, a Chapter 7, Bankruptcy, if you are at or below the median income of the state where your are filing your bankruptcy. So, if you make too much money, you probably cannot file a chapter 7 bankruptcy.
3. You want too keep non-exempt assets. Filing a chapter 7 bankruptcy will not leave you destitute. The Chapter 7 Bankruptcy allows certain personal property to be exempt from creditors. But, there are definite limitations. For example, in Nevada, a personal car worth up to $15,000 is exempt from creditors. So, if you wanted to keep your custom built muscle car or Rolls Royce a Chapter 7 bankruptcy may not be your best option.
In conclusion, it may be advantageous for you to file a chapter 13 bankruptcy. Personally, I would only fie a Chapter 13 bankruptcy if the above scenarios were present. Also, if you want to keep certain assets you maybe able to buy those assets back from the trustee. So, you could potentially keep your expensive car and still file a chapter 7 bankruptcy. So, at the very least, only file a chapter 13, after extensive research and after you have received legal consultation.
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