When is a Chapter 13 Bankruptcy a better Alternative than a Chapter 7 Bankruptcy?

There are several situations where a Chapter 13 bankruptcy is a better alternative than a Chapter 7 bankruptcy; however, this very much depends on an individual’s particular situation.  While many people assume that a Chapter 7 bankruptcy will be a better option than a Chapter 13 bankruptcy, this can prove to be untrue.  Certain situations including income, types of property, and property value can play a large part in determining if a Chapter 13 bankruptcy is a better option than a Chapter 7 bankruptcy.

Income become a factor in bankruptcy when you make “over median” annual income.  “Median Income” varies from state to state, and also varies with household size.  Median income is a figure determined by the bankruptcy court that takes into account reasonable, average living expenses accounting for household size, based on the state you live in.  Depending on how much you make compared to how many dependents you have, you could be “over median” or “under median”.  If you are “over median” it is very likely that you will have to file a Chapter 13.

A Chapter 13 bankruptcy is also a better alternative to a Chapter 7 bankruptcy if you are behind on your mortgage and/or have a pending foreclosure.  If you own a home, are behind on your mortgage payments and have a foreclosure scheduled or pending, filing a Chapter 13 bankruptcy would be an option for you to keep your home.  Not only will the bankruptcy stop the foreclosure process, but it will also allow you to catch up on your late mortgage payments through your Chapter 13 plan payments.

Property value can also play a large role in determining if a Chapter 13 bankruptcy is a better alternative than a Chapter 7 bankruptcy.  If you have a large amount of equity in your house or car, or have certain personal property that has a large monetary value, and you want to keep that property, a Chapter 13 bankruptcy would be a better alternative for you.  Because the bankruptcy code only allows debtors to exempt a certain amount of property based on value, if you have any particular property that is worth a large amount of money, you may need to file a Chapter 13 bankruptcy.

If you would like help determining if a Chapter 13 bankruptcy is a better alternative than a chapter 7 bankruptcy, contact a St. Louis Bankruptcy attorney today.

 

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