The type of bankruptcy case that you should file is something that can only be decided after a careful review of all of your facts and circumstances. Your bankruptcy lawyer must know about every asset you own and every debt you owe to determine which type of bankruptcy will give you the most benefit. Your bankruptcy attorney must also know how much you earn, how much you spend, whether you have made any recent purchases with credit cards, whether you have been accused of fraud, embezzlement, willful injury to another person, whether you owe alimony or child support, and whether you have made any transfers in the past 10 years. This is just a partial list of the information that can be relevant in making this important decision.
When is Chapter 7 a Good Choice?
The number one goal in any bankruptcy case is to maximize the benefit you receive while minimizing what you stand to lose, if anything, by the filing your bankruptcy case. Chapter 7 works best when you have little or no equity in your assets. Chapter 7 bankruptcy is also an excellent choice when you have secured property that you want to surrender. For example, if you are about to lose your house to foreclosure, it is better to file a bankruptcy case than allow the foreclosure to proceed. You can cure the arrearage through a Chapter 13 case and keep the home or you can surrender the house through a Chapter 7 bankruptcy case.
When is a Chapter 7 Bankruptcy Not a Good Choice?
Chapter 7 bankruptcy is not for people with a great deal of equity in their homes or cars unless they want to give the items up or have the ability to pay the bankruptcy trustee for the equity in their assets. Likewise, Chapter 7 bankruptcy cases are not suitable for people who have fraudulently transferred assets within a year preceding the filing of the bankruptcy case.
When is Filing a Chapter 13 Bankruptcy Case a Good Choice?
Chapter 13 bankruptcies are excellent choices for people who owe nondischargeable taxes. Through a Chapter 13 bankruptcy case, you can repay your tax debts without having to pay interest. Chapter 13 is also an excellent choice when you are behind on the payments and trying to save your home or car. If you can afford to make the regular monthly payment but you are unable to come up with a lump sum to cure any arrearage, Chapter 13 is an ideal choice. Chapter 13 bankruptcy is a good choice when you own a car that is worth less than you owe or if you have a loan on your car with a high interest rate. In addition, Chapter 13 bankruptcy cases are the only cases that allow you to strip off a totally unsecured junior mortgage. If you own a home that is worth $100,000 and you owe $110,000 to your first mortgage company, you can wipe out (strip off) any other liens on the property. The ability to lien strip is a tremendous benefit in today's economy where so many people find themselves in houses where they owe substantially more than the home is worth.
When is Chapter 13 Bankruptcy a Poor Choice?
Chapter 13 is only available to individuals who have sufficient regular and stable income to fund their plan of reorganization. If you lack the ability to pay for your home and car, Chapter 13 will not provide you with a method of keeping those items. You must be able to make your payments for Chapter 13 to help you. Sometimes people are under this misbelief that Chapter 13 will get you a payment you can afford. While Chapter 13 can sometimes help you get into a better payment situation, your payment amount is calculated according to the bankruptcy code. A difficult fact for many people to accept is that even through Chapter 13, you cannot keep something that you cannot afford.
If you are ready to take control of your debt, call to set up a free consultation with an experienced bankruptcy lawyer. Be prepared to discuss with your bankruptcy attorney all of your assets and debts. Remember full disclosure is critical if you want to find the best solution to your debt problems. The sooner you take action to learn more, the sooner you can make the right decision and start living a better, debt free life.