If you compare Chapter 7 bankruptcy to Chapter 13, you might initially want to use Chapter 7. Chapter 7 provides perks that you cannot receive from Chapter 13, but Chapter 7 is not always the best choice. Here are three reasons that people choose Chapter 13 bankruptcy when they need debt relief help.
They Do Not Qualify for Chapter 7
One of the main reasons people use Chapter 13 is because they do not qualify for Chapter 7. A bankruptcy attorney will examine your income and situation to determine if you are eligible for Chapter 7. If your income exceeds the limit, you cannot use Chapter 7. Instead, you could use Chapter 13. Therefore, many people who choose Chapter 13 do so because this is the only branch they are eligible to use.
Chapter 7 Would Not Provide the Right Relief
People that file for Chapter 7 typically have debts that fall into the category of qualifying debts. Qualifying debts under this branch of law allow filers to receive a discharge of debts. When the court discharges debts, the person no longer owes them. The court forgives and eliminates the debts for the person who files. The problem is that some debts do not qualify for debt forgiveness. If your debts do not qualify, filing for Chapter 7 would not provide any relief, so there is no point in filing.
Chapter 13, on the other hand, can provide relief for all debts, even those that the court will not discharge in Chapter 7.
Chapter 13 Stops the Loss of Assets
The other reason people use Chapter 13 is to stop the loss of assets. Did you receive foreclosure documents in the mail from your mortgage lender? If so, you can likely stop the foreclosure through a Chapter 13 case. Did you receive a notice from your auto lender that you are behind on payments? If you fall further behind, the lender might repossess your vehicle. You can stop the repossession if you use Chapter 13. Chapter 7 does not stop things like this from occurring. Therefore, if you face foreclosure or repossession, Chapter 13 is the only branch of law that can provide the financial relief you need.
Before you decide which branch to use, ask a lawyer to calculate a means test. This test will determine which branches you qualify for and can help you determine the best route for your situation.