Should you file a Chapter 7 or a Chapter 13?

7-or-13-e1525536681230A chapter 13 bankruptcy can do everything a chapter 7 can do and more. A chapter 13 has  extra tools for special debts. A chapter 13 takes 3-5 years to complete and costs more than a Chapter 7 in the long run. Which one you should file depends on what you are trying to hold on to and save.

A chapter 13 has special powers which allow you to deal with foreclosure, tax debts, child support, and student loans better. You can catch up the payments on a home or car in a chapter 13 over 3, 4, or 5 years. A chapter 7 only lasts about 4 to 5 months from start to finish. It will only delay a foreclosure and put off student loan and tax problems. Chapter 7 will not help catch up the back notes on a mortgage. In a chapter 13 you can catch up the back notes over a longer period of time, lower the notes and the interest rate on vehicles and loans.

When to use a Chapter 13

A chapter 13 can often strip a car loan to the value of the vehicle and you would only repay what the car is worth. There are many powers you have in a chapter 13, which chapter 7 just doesn’t have. If you filed a chapter 7 within the last 8 years, you can’t file another chapter 7, but you could file a chapter 13. If you earn too much income for a chapter 7 you can file a chapter 13 and pay a percentage of your debts in a chapter 13. Chapter 7 might not be the best choice if you have debts that need the Chapter 13 tools for homeowners and people with long term medical problems, taxes or student loan collections.

Managing Non Dischargeable Debts

Some debts are non dischargeable in bankruptcy. This means they cannot be discharged or wiped out. Some student loans, IRS taxes less than 3 years old, and child support are non dischargeable debts. These debts survive chapter 7 bankruptcy and go right back to collections as soon as the chapter 7 is over. You can pay these debts in a chapter 13 while paying little or nothing to your unsecured creditors, like credit cards and medical bills. Some taxes and private student loans can be discharged or they may be paid little or nothing.

While you are in the bankruptcy, you, your wages, and your property in under the protection of the court.