Chapter 13 Bankruptcy

When to File for Chapter 13 Bankruptcy

Before you can assess whether or not to file for a Chapter 13 bankruptcy, it’s imperative to know exactly what that means. Chapter 13 allows you to repay creditors in a 3-5 year plan at 0% interest. Usually, if you have filed for Chapter 13, you will only have to pay your creditors a percentage of what you actually owe. Most importantly, you get to keep all of your assets. You will get put on either a weekly or monthly payment plan that is designed around your personal budget and income. So when should you file for Chapter 13 bankruptcy? Here is a list of circumstances in which filing for Chapter 13 bankruptcy might be a good option.

1. You have filed a Chapter 7 bankruptcy within the last 8 years and you cannot file a Chapter 7 again, filing for a Chapter 13 might be a good option for you.

2. You are facing a short-term financial setback like job loss, illness, or a large unexpected expense.  If you have fallen into financial distress that has caused you to fall behind on your bills, but you still have regular income, filing a Chapter 13 could help. It allows you some breathing room to get back on you feet and back on track with your payments without losing your home or property.

3. Your creditors are threatening to repossess your car, garnish your wages, and are pressuring you with constant phone calls. Filing for a Chapter 13 will stop all this immediately because you become under what is known as automatic stay. Basically, this means your creditors are barred from making any more attempts to collect on the debts you owe. So, if you are looking to repay your debts, but according to your affordability rather than at the demands of your creditors, filing a Chapter 13 might be your answer.

4. You are facing possible foreclosure or repossession. Filing a Chapter 13 can help you avoid foreclosure or repossession because it allows you to catch up past due payments over that 3 -5 year period, while keeping current payments up to date.

5. You are making too much to file a Chapter 7 bankruptcy. When filing for a Chapter 7 bankruptcy, you must pass a “means test” that proves your income is lower than the average household income in your state. If you have assessed your situation and found that your income is too high and you do not have enough dependents to file a Chapter 7, you might have better luck filing a Chapter 13.

6. You have a lot of assets. Your house, you car, your equity…these are all assets that you will lose if you file a Chapter 7. A Chapter 13 can let you keep all of your assets. It allows you the same protections as a Chapter 7, but you don’t have to turn your assets over to your creditors. If your house is still under mortgage or your car is being leased and you are unable to keep up the monthly payments for them, you should consider filing for Chapter 13, to avoid losing them.

7. You have a lot of taxes, student loans, or other debts that are non-dischargeable in a Chapter 7. If you need protection from the IRS or student loan collectors attacking your pay and bank accounts, you might be better off filing a Chapter 13.

8. You have enough disposable income to pay toward your debts after paying your essential living expenses. If you are able to make periodic payments, you are eligible for Chapter 13.