Five Financial Situations Will Help Lead You to Final Decision
Eric A. Lanigan, of Lanigan and Lanigan, P.L., has seen clients walk into his office unsure of whether to file Chapter 13 bankruptcy or Chapter 7 bankruptcy since 2007. Lanigan created a video showing five personal financial situations you may be in that will help decide the filing of Chapter 7 or Chapter 13 bankruptcy.
“It can be confusing for those who do not know what the basics of bankruptcy entail,” said (Winter Park, Florida) bankruptcy and foreclosure attorney Eric Lanigan. “There are five deciding factors that will help you determine which to file a Chapter 7 or a Chapter 13 bankruptcy.
These Five Financial Issues Help Determine Which Bankruptcy to File:
- You have a co-debtor on your debt
- You have non-exempt property
- You own investment or rental property
- You have a tax obligation or student loan
- You’re behind on your car payment or your mortgage
Knowing when is it preferable to file a Chapter 13 bankruptcy vs. Chapter 7 starts with what the basic differences are:
- Chapter 7 is a liquidation and elimination of debts
- “In a Chapter 7 bankruptcy all your debts, other than debts which you specifically reaffirm such as a car loan, or a home mortgage, or debts which are not dischargeable, such as federal taxes, or student loans, are discharged,” Lanigan said.
- Chapter 13 is a reorganization of debts to be paid off over a three to five year period
- “However, in a Chapter 13 bankruptcy, the unsecured debts or some portion of them, typically a small portion of them is paid off over a period of three to five years.”
Taking that fundamental distinction between Chapter 7 and 13 into consideration there are five reasons why a Chapter 13 might be preferable to a Chapter 7 bankruptcy.
No. 1: You have a co-debtor on your loan or debt
Boyfriend, sister, brother, mom, dad, a friend or relative co-signed for your loan, car, credit card.
In a Chapter 7: If you discharge the loan in a Chapter 7 bankruptcy, creditors are going to the co-debtor to collect the money.
In a Chapter 13: You can pay a portion of that debt over time and as lo
ng as the automatic stay or freeze is in effect, the creditor can’t go after the co-debtor
No. 2: You’ve got non-exempt property
In a Chapter 7: There’s certain property that you can keep and that property is exempt. Any property that’s not exempt, you will have to give up to the trustee to sell and use the funds to pay creditors.
In a Chapter 13: You can keep that property and whatever amount is owed to creditors you pay off over a three to five-year period as part of the plan.
No. 3: You own investment or rental property and it’s upside down in value
The bankruptcy court can cramdown the mortgage — reduce the mortgage — to the actual value of the property.
In a Chapter 7: The crammed down amount is put into unsecured debt and ultimately gets discharged along with the unsecured debt.
In a Chapter 13: This becomes a zero payment plan: there’s no payments, zero payments going to unsecured creditors. All of that debt is going to be discharged.
So in this situation — owning rental or investment property — if you can get close to a zero payment plan in a Chapter 13, and you take advantage of the five situations referred to here, it is dramatically better than going through a Chapter 7 bankruptcy.
No. 4: You have a tax obligation or student loan
In a Chapter 13: These debts are not dischargeable by the creditor in a Chapter 7 or a Chapter 13. But in a Chapter 13 whether it’s the IRS or the student loan, the lender is required to accept whatever payments the judge approves within the Chapter 13 plan. This may be significantly less than what you would otherwise have had to pay.
No. 5: You’re behind on your car payment or your mortgage.
You want to make up the payments but the bank is saying you’ve got to pay the entire amount at once.
In a Chapter 13: The court can require that the lender accept the payment of the backdue payment over a three to five year period during the course of the plan.
Clarify Your Personal Financial Decisions
Filing bankruptcy doesn’t have to be confusing. Have a conversation with (Winter Park, Florida) law firm Lanigan and Lanigan to help you determine whether to file Chapter 7 or Chapter 13. You may call (407) 740-7379 to schedule a consultation with Eric Lanigan or Roddy Lanigan.
Lanigan & Lanigan is located at 831 W. Morse Ave., in Winter Park, FL. There is ample parking available in the back of the law offices.
To learn more about filing bankruptcy before your visit, go to the Lanigan and Lanigan YouTube channel to watch the video that explains the five ways to know whether to file Chapter 7 or Chapter 13 bankruptcy.