Things to take into account in deciding between filing Chapter 7 or 13 Bankruptcy

In deciding between Chapter 7 or 13 bankruptcy one needs to consider several factors. Eligibility to file Chapter 7 or 13 is the main consideration. For example if your income is above the median income you may not pass the means test. The means test is an income based test which takes into account a number of factors such as your household size and various qualified expenses such as health insurance, car payments, health care etc. If you fail the means test there is a presumption that your case is an abuse and you will face a motion to dismiss or convert your case to Chapter 13 unless you can rebut the presumption. A second factor is that you may not be eligible to fo Chapter 7 because you filed a Chapter 7 within 8 years and received a discharge. In that case Chapter would be the only relief to seek. It is not uncommon that a person will file Chapter 13 to substantial reduce payments to their creditors and avoid garnishment while waiting to become eligible to file Chapter 7. A third factor to consider is the dischargeability of certain debts. A Chapter 13 may discharge debts that are not dischargeable in Chapter 7. Examples of such debts are property settlements in divorce agreements; unemployment fines and other similar debts. Another factor to consider Chapter 13 is when a client has a large priority tax obligation to the IRS. In that type of case interest need not be paid on the liability in a Chapter 13. Another factor in determining the right Chapter is retention of assets. Chapter 7 allows a person to exempt a certain amount of property. If a person’s property exceeds the allowed amount the Chapter 7 trustee will take that property and sell it for the benefit of creditors. In a Chapter 13 however, that person can retain the property as long as the dividend paid to creditors exceeds the amount the creditors would receive if the property were liquidated in Chapter 7. Sometines a person may face other problems in a Chapter 7 such as a preference paid to a famly mattor or other transfers. A Chapter 7 Trustee can recover property transferred to family members and other property up to one to six years depending on the circumstances. Chapter 13 Trustees generally do not pursue these types of transactions known as preferences. In this way you can avoid problems for relative or other transferee you paid from having to pay the funds you paid them to the Trustee. Finally some people prefer to pay something to their creditors even though they may be eligible to file Chapter 7. They may not be able to pay all of the money they owe to their creditors but prefer to pay some of the money they owe. A Chapter 13 will discharge the remaining unpaid balance upon completion.

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