Chapter 7 Bankruptcy or Chapter 13 Bankruptcy - Which One Is Right For You?
As a Boise Bankruptcy Attorney I often get calls from individuals who are contemplating bankruptcy but are unsure which form is right for them. As mentioned in previous blogs on the subject, in general, a Chapter 7 works for individuals who have very little expendable income after their monthly bills, who's income is less than or about average and who are ok with selling unsecured property to pay their debts. A Chapter 13 works best for individuals, and may be the only option for many, when there is specific property they wish to keep, their monthly income, after qualified expenses, exceeds $168 or they have already filed a Chapter 7 within the past 8 years.
What Happens if you Have Filed a Chapter 7 Bankruptcy Within 8 Years and Find Yourself Needing Bankruptcy Protection Again?
As mentioned above, you can only file Chapter 7 Bankruptcy once every 8 years. You can, however, file a Chapter 13 Bankruptcy if you find yourself in serious financial straights again before the 8 years is up. While not a technical bankruptcy term, this is often referred to as a Chapter 20 Bankruptcy.
So Which Form of Bankruptcy is Best for You?
To answer this question thoroughly you really need to talk to a bankruptcy lawyer because there are so many things to take into consideration. However, in general, it is important to ask some basic questions to see what your situation is and what you are hoping and trying to achieve by filing bankruptcy.
Are you wanting to keep certain property? Do you have a regular job with income that exceeds your expenses? While, in general, people wanting to file for bankruptcy want to discharge their debt and start fresh, it is important to remember that not all debt is dischargeable, such as tax bills and student loans. However, sometimes when you file a Chapter 13, you might actually end up discharging second or third mortgages. This is an appealing option, if you want to keep your house, but the loans on your home are worth more than their value. There is something known as "stripping" a lien. Stripping a lien is not allowed in a Chapter 7 Bankruptcy, but it is in a Chapter 13. It goes something like this: If, for example, you own a house and have a $250,000 mortgage on your home and a second mortgage for $50,000 and a third mortgage for $30,000. Originally, when you got the second and the third mortgages they were secured debts. This gave them priority. Secured debt may be discharged (or reaffirmed), but the lien (this is what makes it secured) will survive the bankruptcy. If the value of your home is now only $199,000, the value of the home is less than the outstanding first, second and third mortgages. Stripping a lien in Chapter 13 Bankruptcy would result in the second and the third mortgages becoming unsecured debt and therefore they lose priority and the lien does not survive the bankruptcy.
While a Chapter 7 may look appealing, if your bankruptcy could go either way because of the means test, it might actually work to your benefit to file for Chapter 13 instead. If you need to file bankruptcy and need to speak to a Boise Bankruptcy Attorney, please call us at (208) 472-2383 or fill out the quick contact form on our website and one of our bankruptcy lawyers will get right back to you.
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