Is Chapter 13 a good fit for your finances?
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If you're behind on your bills, late on your mortgage and struggling, you need a solution to get you back on track. Chapter 13 may be the answer, depending on your circumstances. The two common US consumer bankruptcy plans are Chapter 7 and Chapter 13. Today we'll look at when Chapter 13 is more appropriate and how to know if it's a fit for you.
Do you qualify for a Chapter 13?
Unlike with a Chapter 7, there is not a “means test.” In other words, there's no cap on the amount of income or assets you can have and potentially qualify for a Chapter 13. It is called a “wage earner” plan so, in fact, you must have some form of steady income to get a plan approved. You can earn too little to qualify for Chapter 13, but not too much so long as you're struggling to pay your bills and need a hand. Also, if your income is irregular, you plan may not be approved.
Do you have assets to protect?
The primary reason to look to Chapter 13 versus Chapter 7 bankruptcy is to protect assets. If you have a lot of equity in your home, you could be forced to sell in Chapter 7 to satisfy your debts. In Chapter 13, you can keep your home and get on a repayment plan to catch up on your bills. You may also be able to protect other assets including a second home, additional vehicles, stocks, bonds, artwork and even cash in the bank. Under Chapter 7, all this would be accessible to creditors.
Do you have bills to catch up on?
The other main reason to look at Chapter 13 is to get caught up. Chapter 13 allows you a three to five-year repayment plan to get caught up on back balances while continuing to make current payments on secured debts (house, car, etc.). So, for instance, if you are behind on your mortgage, you would have several years to catch up the past due while making the current payments. This can help you to save a home that has a lot of equity that you could otherwise lose to foreclosure due to delinquency.
Do you have dischargeable debts?
In addition to getting caught up on secured debts like your mortgage or car payment, you can unload a portion of your unsecured debts like credit cards and medical bills. You will have to satisfy a portion of this unsecured debt, but can likely discharge a lot of it. Other debts that cannot be discharged in either Chapter 7 or Chapter 13 include child support, alimony, recent income taxes, and government fines. Student loans may be dischargeable in Chapter 7 but likely not in Chapter 13.
Do you need to save your home from foreclosure?
If you have been notified of a pending foreclosure from your mortgage lender, filing Chapter 7 or Chapter 13 will stop that action for a while. If you have negative equity or no equity in the property, you may want to consider Chapter 7 and let the house go. But if you have equity, you may want to stall the foreclosure long enough for you to get caught up or to try and sell the house to recover your equity. Chapter 13 can help with these goals.
To find out more about how Chapter 13 can help you get your finances in order, contact the Law Offices of John T Orcutt. Call +1-919-646-2654 to speak to a North Carolina bankruptcy expert at our locations in Greensboro, Raleigh, Garner, Fayetteville, Wilson or Durham.