When to File Chapter 13 Bankruptcy?

People who are struggling with finances usually want to file Chapter 7 bankruptcy, as it promises to erase all unsecured debt and grant a fresh start within 3-6 months. Chapter 13 is the less popular bankruptcy option, which is mostly considered when there is no other option. Chapter 13 focuses on paying off debt by organizing a feasible payment plan. The filer gets to catch up on missed or outstanding payments over a span of 3-5 years. While ineligibility for Chapter 7 is a common reason for choosing Chapter 13, there are situations when filing Chapter 13 is in fact better than the former.

According to Bankruptcy Attorney in Jacksonville, FL, filing Chapter 13 makes sense in times when:

You are Fraught by Secured Debt

In order to qualify for a bankruptcy, you have to pass a means test. In case of Chapter 7, you are not allowed to file if your income in the last six months exceeds the median. You will also be disqualified if you have enough disposable income to pay off your debts. Chapter 7 is only justified if you are nearly broke and dealing with unsecured debt is the major concern.

If your financial liabilities primarily consist of extensive secured debt, such as mortgage, student loan, car lease, alimony, child support, and government taxes, Chapter 7 will not help you. On the contrary, Chapter 13 can provide you partial relief or at least a time extension to catch up on pending payments.

Multiple Creditors are pestering you

One key advantage of filing for any kind of bankruptcy is that it grants protection from everyone you owe money, i.e. you receive an order of ‘automatic stay’. During the period of bankruptcy, all attempts of debt collection are seized; hence, creditors cannot contact and harass you for money. If a creditor demands payment nonetheless, the court shall issue a restraining order and impose additional penalties on them. Creditors cannot garnish your wages, claim money from your bank accounts, or initiate a civil lawsuit for money judgment during the automatic stay period.

Automatic stay prohibits lenders from foreclosing or repossessing property. In case of Chapter 7 bankruptcy, the automatic stay is a temporary solution that lasts no more than 30 days. During this time, you may either liquidate assets to make up for outstanding costs or look for an alternative. Chapter 13 can grant you an automatic stay for 3-5 years, enabling you to pay off your loans in smaller installments over time.

You want to keep non-exempt assets

Belongings that are not considered as ‘basic needs’ or ‘important for survival’ cannot be kept after filing Chapter 7 bankruptcy, especially if their economic value exceeds the amount predetermined by the state’s bankruptcy laws. Non-exempt assets are confiscated by the bankruptcy trustee, who may auction or liquidate them to compensate creditors. Chapter 13 lets you retain non-exempt assets and prevents liquidation. You can keep precious family heirlooms and other luxury possessions, as long as you abide by the trustee’s payment plan.

You want to save your business While Chapter 13 is not a business bankruptcy, it can protect sole proprietorship. Therefore, a small family business that does not qualify for Chapter 7 due to income limits can opt for this route. This means that you can list your business assets/debts as individual assets/debts in the bankruptcy. You gain the opportunity to reorganize your business and prevent it from shutting down.

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