When Is Chapter 13 Better Than Chapter 7 Bankruptcy

The following post is submitted by attorney Kelly Kilpatrick:

It’s a tough position to find yourself in – you’re way over your head in debt and there seems to be no way out, except to resort to declaring bankruptcy. It’s not an easy decision to make, but when you find yourself staring down the barrel of a gun, the choice is out of your hands, and you may want to start with a clean slate by filing under Chapter 7. This kind of bankruptcy allows you to erase all your debts – your assets, if you have any, are sold and the proceeds used to pay off your lenders. But there are certain circumstances under which you may not be allowed to file for bankruptcy using Chapter 7.

 

When your income exceeds a certain level:

If you have a steady income, one that you’ve been earning for at least six months now, and if Uncle Sam’s rules state that you’re making enough to meet the median income for a family your size in your state, then you’re not allowed to wash your hands off your debts. What you can do in such a situation, is file using Chapter 13 where you’re allowed a grace period in which you can set up a plan and pay off your debts according to the plan.

When you have a sizeable disposable income:

Your disposable income, in case you’re wondering what that is, is the amount you have left after your basic expenses are met, and after you’ve paid off your creditors according to the plan devised under a Chapter 13 bankruptcy.

But don’t let these hurdles get you down; contrary to popular belief, Chapter 13 is a better alternative to Chapter 7, and here are the reasons why:

You don’t lose all your property and assets.

You gain more time to pull yourself together, clean up your act, set a budget and get down to paying your debts.

You have the satisfaction of having paid off your debts rather than having them written off.

You learn the value of spending within your means.

There are some debts that still have to be paid even under Chapter 7, like child support, student loans, alimony and taxes.

You don’t leave your co-debtors in the lurch – filing for Chapter 7 means you’re off the hook, but those who signed on the dotted line with you are not, and your creditors are still free to harass them.

A steady income gives you the luxury of being able to budget wisely and even save some money for a rainy day. So if you’re able to repay your debtors without having to file for bankruptcy, do so rather than taking the easy way out and running away from your problems. Remember, a bankruptcy is a blot on your credit record that stay for between 7 and 10 years, and you don’t want that kind of a sword hanging over your head, not when you’ve decided to get your act straight.

By-line:

This post was contributed by Kelly Kilpatrick, who writes on the subject of corrections officer. She invites your feedback at kellykilpatrick24 at gmail dot com