In our guide to Chapter 13 Bankruptcy, we discuss how this type of debt relief is much broader in scope when compared to a Chapter 7 filing. One of the most common questions posed to bankruptcy attorneys is: “which form of bankruptcy is the best for me?” This is a question that only an experienced and straight-shooting bankruptcy attorney can truly answer with any form of certainty, and this only after they have had the chance to study your situation after your initial consultation. While neither chapter is inherently “better” than the other, there are some key indicators that can help steer you in the right direction.
You Don’t Qualify for a Chapter 7 Bankruptcy
The most evident reason to file a Chapter 13 bankruptcy is if you don’t qualify for a Chapter 7. If you make too much money according to your state’s guidelines, you won’t be able to file a Chapter 7 bankruptcy but there is a chance you can still qualified for a Chapter 13 filing.
Your Equity in Your Home Won’t be Protected in Chapter 7
The great thing about Chapter 13 is that you usually get to retain the property that you’d like to keep, including your home. A helpful first step in determining how your home equity affects bankruptcy is to subtract your remaining mortgage balance by the value of your home. This is valuable information to know as every state is different in the amount of home equity you can exempt through the homestead exemption. If you haven’t equity in your home, the trustee can’t sell any of your property including your house.
You’re Trying to Get Caught Up on Delinquent Payments
A Chapter 13 bankruptcy will spread out what you owe over the course of 36 to 60 months, allowing you to get caught up on all your payments. This could be considered both a pro and con as the process will save your property but at the same time the bankruptcy process will take longer. When you file a Chapter 13 bankruptcy, you will come up with a repayment plan consisting of which creditors will get paid, how long it will take, and the values of all your property. This can be an overwhelming process for some as both the trustee and your creditors can object to your plan. Getting help from a Sacramento Bankruptcy Attorney can not only greatly increase your chances of success, but give you a person experienced in the process to assist you in coming up with your plan.
You have 2nd or 3rd Mortgages
Through a process called “lien stripping”, a Chapter 13 bankruptcy can eliminate certain liens on your property. Junior leans which are secondary to your initial mortgage can often be removed from your property all together under certain situations.
You Have Tax Debt
Chapter 13 bankruptcy is also an excellent tool to catch up on back taxes. Taxes are generally not dischargeble in bankruptcy and the taxing authorities can be pretty aggressive in their efforts to collect. A Chapter 13 bankruptcy not only protects you from garnishment and bank levies by the IRS or State Franchise Tax Board, it also allows you 5 years to pay off the tax debt.
You Have an Income to Pay Down Your Debt
Chapter 13 bankruptcy is sometimes referred to as the “wage earners bankruptcy” because it’s geared towards debtors who are earning a wage/salary or have regular income. If you have enough income after expense to pay your debts, then you should qualify for a Chapter 13 bankruptcy.
Chapter 13 bankruptcy can be an extremely effective vehicle towards repaying your debt, saving your home and vehicle, paying off back taxes, and eventually improving your credit. It can be a complicated process, so the logical first step before filing on your own is to obtain the services of qualified California bankruptcy attorney. Doing so will not only increase your chances of obtaining a successful discharge, but will also give you valuable guidance you need during the process.
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