Why Chapter 13 May Be The Better Option

When it comes to the decision to file for bankruptcy, you may think there isn’t much difference between Chapter 7 and Chapter 13. In fact, your financial situation is as unique as the risks and benefits associated with filing one case over the other. Before deciding on which type of bankruptcy to file, consider the following issues surrounding a Chapter 13 case.

What You Should Consider

Filing for Chapter 13 bankruptcy may prove to be more beneficial in several ways. You may find that you do not qualify for Chapter 7 because your income is too high. This sparks the question: how my income be too high if I can’t afford to repay my debts?

Bankruptcy laws require that anyone filing for Chapter 7 pass a means test, which determines if your income level is sufficient enough to repay your debts. This test is meant to help weed out those that could repay their debts over a three to five year period through Chapter 13. The bottom line: repaying your debts, no matter how long it takes, is always a good option.

Although this doesn’t sound like much of a benefit, repaying your debts through Chapter 13 can be very beneficial to your financial future. If your debts are discharged through a Chapter 7 case, you face two major risks:

• The first  is the potential to lose some of your assets to creditors in order to satisfy your debts. Although bankruptcy exemption laws can protect many of your assets from liquidation, there are still some situations in which certain assets are at risk.
• The second is increased damage to your credit after a Chapter 7 case. Despite the fact that the majority of the damage done to your credit happens before you file, future lenders may look more favorably on someone who repaid their debts through Chapter 13 rather than had them eliminated in a Chapter 7 case.

Before you decide to file for either Chapter 7 or Chapter 13, it is best to consult a bankruptcy attorney who can review your situation and determine which type of filing is best for your situation.