When both Chapters of bankruptcy are available in Florida, Chapter 13 bankruptcy may present some unique advantages over Chapter 7.
Bankruptcy is a legal process designed to help those who are in debt while also assuring some degree of fairness to all parties involved. For the majority of people, bankruptcy is a choice between Chapter 7 and Chapter 13 (or possibly both). Chapter 7 is commonly referred to as a “liquidation” bankruptcy, whereas a Chapter 13 bankruptcy reorganizes debts into a 3 or 5-year payment plan. High income, unexempt assets, prior bankruptcies, and other variables may preclude someone from filing for Chapter 7. The choice is an ultimatum. To most filers, discharging the debt all at once seems preferable to a multi-year payment plan. Chapter 13 does, however, provide benefits not available in Chapter 7. It may be more helpful to resolve your debts with Chapter 13 bankruptcy, depending on your specific scenario.
Below are a few examples…
Your house has a 2nd mortgage or home equity loan.
Discharging junior mortgages on your house is one of the unique benefits of Chapter 13 bankruptcy. This is possible in Ch. 13 when you have a 2nd mortgage or Home Equity Loan and owe more on your 1st mortgage than the house is worth. Despite the fact that the cost of a Chapter 13 is normally higher than that of a Chapter 7, this benefit alone could save you tens of thousands of dollars, if not more.
One or more of your loans have co-signers.
Due to having a less than stellar credit score, you may have needed a co-signer to qualify for a vehicle loan. While this is a financial transaction, the person who decides to take on this obligation for you is usually a friend or relative. The Co-signer accepts the financial responsibility if the primary borrower fails to make their payments. You don’t have to surrender every financed asset in Chapter 7 bankruptcy, but surrendering a co-signed vehicle or eliminating a repossession deficiency balance on a co-signed vehicle could lead to your creditors going after your co-borrower for payment. Because creditors are paid (albeit a fraction of the debt) in Chapter 13, the co- borrower will not be held liable for obligations that were co-signed but were discharged in bankruptcy.
If you don’t want to do your co-signer dirty, you should consider filing Chapter 13 bankruptcy rather than Chapter 7.
A Child Support Order is Garnishing your Pay Check
Wage garnishments are a common catalyst for people to file for bankruptcy. Most wage garnishments are stopped by the Automatic Stay, which is initiated by filing either chapter of bankruptcy. Despite an active bankruptcy, wage garnishments for domestic responsibilities, such as spousal maintenance and child support, remain in place.
The Automatic Stay is only effective in preventing wage garnishments in Chapter 13 bankruptcy cases where the payment plan provides for full payback of the arrears. As a result, claiming Chapter 7 to block a wage garnishment for child support would be pointless. Domestic responsibilities are not dischargeable in any type of bankruptcy, so if you wish to stop a wage garnishment for child support or spousal maintenance, you’ll need to file as a Chapter 13 (and pay the entire arrearage balance in the plan).
You want to keep your relationship with a doctor or other service provider to whom you owe money.
If you discharge your debts under Chapter 7, your doctor, accountant, dog groomer, and other service providers may terminate the relationship. You may have an uncommon ailment, reside in a rural place, or have another reason for not wanting to change providers.
Chapter 13 can assist you in preserving professional ties that Chapter 7 can terminate.
You’d like the Automatic Stay to protect you for a longer period of time.
You’re protected from your creditors collection efforts by the Automatic Stay, which kicks in as soon as your bankruptcy case is filed. When the automatic stay is in effect, your creditors are prohibited from contacting you or pursuing more aggressive collection measures. Wage garnishments, bank levies, vehicle repossession, foreclosure, utility shutoffs, etc. become hard no-nos.
In a Chapter 7 bankruptcy, this peace of mind will only endure 3 to 5 months. Except in rare circumstances, the automatic stay in Chapter 13 bankruptcy lasts for the duration of your Ch. 13 plan.
You’ve fallen behind on your vehicle or mortgage payments and need to keep it.
The Automatic Stay shields you from repossession and foreclosure while your case is pending, but if the underlying debt isn’t dismissed, the lender will repossess or foreclose after the stay protection is lifted. With Ch. 7 bankruptcy, you’ll only have 3-6 months to come up with the entire arrearage balance (if the lender will even accept it). Otherwise, after your case is discharged, the creditor will simply recover the asset, and you will be barred from claiming bankruptcy for another 8 years. When you’re behind on these types of installment loan payments and want to keep the asset that goes with them, Chapter 13 can be a powerful tool. Instead of 3–6 months, you will have 3 or 5 years to make up for missed payments. When you spread out your payments across a few years, paying off your debt in arrears becomes much more attainable. Your loan will be deemed current at the end of your Chapter 13 payment plan, and you’ll be able to keep the vehicle or property.
Call an experienced, local, well-reviewed Bankruptcy Lawyer.
Do you have more questions about whether to file Chapter 7 or Chapter 13 bankruptcy? Do you want to know how long your Ch. 13 plan will be and what your approximate monthly payment will be? For a free consultation with an experienced bankruptcy attorney, call or fill out our online form today! Our friendly and professional team are always ready to help. Get a free consultation to learn more about how bankruptcy can resolve your debt problems. Our consultations are free, our fees are fair, and we offer flexible payment plans. We’ve filed thousands of successful bankruptcy cases for our terrific clients throughout Broward, Palm Beach, Martin, Saint Lucie, and Indian River Counties.