When is Chapter 13 a good idea?

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Question:

When is Chapter 13 a good idea?

Answer:

Filing bankruptcy temporarily stops foreclosure.  Filing a Chapter 13 is a good idea if you have substantial assets and you want to keep them, including your home, car and other personal items such as jewelry and collectibles. You need a steady and stable income in order to make payments under a court-approved payment plan with your creditors over a 3-5 year period. Generally, your creditor agree to reduce your debts, including your mortgage debt.  Once the plan has been completed, your remaining unsecured debt will be discharged.   A Chapter 7 is recommended if you have no or very little assets and want to start over fresh with no debt.  There are statutory exemptions for your home, car and personal property, as long as they fall within the limit values.  Also, there are certain debts that cannot be discharged in bankruptcy including:  

  • State, federal and municipal taxes (may be possible to get federal taxes that are 3 years or older discharged)
  • Student loans (may be possible to get them discharged if you can prove a financial hardship)  
  • Spousal and child support payments
  • Court ordered fines and fees
  • Debts that caused personal injury to a third party while the debtor was driving under the influence of alcohol or drugs.
  • Debts that incurred regarding fraud or embezzlement 

Making a decision to file for bankruptcy is a difficult and complicated one.  You should seek legal advice from a bankruptcy attorney first. The attorney can advise you of all your options, and can help you decide under which Chapter to file for.  The attorney can negotiate a Chapter 13 repayment plan with your creditors, and represent you in bankruptcy court.   

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