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When to File a Chapter 13 Bankruptcy Instead of Chapter 7

Bankruptcy, Podcasts

 Click to Listen. Right Click Audio as it’s playing to download to your device.   When is it Preferable to File a Chapter 13 bankruptcy vs. Chapter 7? First let’s talk about what the basic difference is. Chapter 7 is liquidation 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, all other debts are discharged. Whereas in a bankruptcy, the unsecured debts or some portion of them, typically a small portion of them is paid off over a period of time three to five years. So taking that fundamental distinction between Chapter 7 and 13 into consideration what are some reasons why a Chapter 13 might be preferable? Well, I’ve listed five and not necessarily in any particular order. First of all, someone’s behind in their mortgage or their car loan they want to make up the payments but the bank is saying no, you’ve got to pay it all at one time. In a Chapter 13 bankruptcy, 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. Another, number two would be if you have a tax obligation or student loan which is not dischargeable in a Chapter 13 bankruptcy, the creditor whether it be the IRS or the student loan lender is required to accept whatever payments the judge approves within the Chapter 13 plan. Which may be significantly less than...