Thursday, December 13, 2012

Bankruptcy

We all know that Chapter 7 is the most common choice when it comes to filing for bankruptcy. But among the many chapters bankruptcy comprises, Chapter 13 is the second favourite. Now with the new law, many more debtors will find themselves filing this claim. And not exactly by choice, but because they will find it impossible to file for Chapter 7 due to the new salary limitations. This and some of the new regulations have caused quite a stir, and already people are choosing side.

But truth be told, no matter what chapter you choose, if you do not qualify for Chapter 7, you will not be able to file for it, and will have to file for the second alternative. Leaving aside the eligibility issue, there are still many who opt for this type of chapter because it offers options no other chapter does.

Here we will discuss those cases in which Chapter 13 is the best alternative for the debtor.

Case #1: You Are A Homeowner

Chapter 13 does carry some major drawbacks individuals are not very inclined to go through: it might take up to five years for this type of claim to be discharged though it usually takes 3, also, the debtor will have to actually pay those debts, they will not be written off instantly like in a Chapter 7 claim. But, on the other hand, this type of bankruptcy tends to have a less harsh effect on personal property as it works more or less like a repayment plan.

If you are a homeowner, I take it that your home is one of the most important things you own, if not the most important. When filing for Chapter 7, the debtor runs the risk of having his home repossessed. In a Chapter 13 bankruptcy, provided that you are successful in repaying the debt, none of your assets will be in danger. Many homeowners will rather pay back their debt and have the knowledge that their home is safe.

Case #2: You Own Non-Dischargeable Debts

Some types of debts cannot be discharged. If you happen to have many of them (government student loan, alimony debt, tax related debt, etc) and are in need of filing for bankruptcy, it might not be worth it to file for Chapter 7. True, the rest of your debts will be discharged, but the other ones will remain, and you will still have to pay the off. It might be wiser to file for Chapter 13 and work out a repayment plan for them.

Case #3: You Have A Co-Signer On One Of Your Loans

Having a co-signer always boosts loan approval chances, that is why many people resort to friends and family for help. Truth be told, the moment that person signs the contract, they become co-debtors. Provided that you are unable to repay any of your debts and you decide to file for Chapter 7, the debts will be discharged for you, but not for your co-signer. Creditors will quit harassing you, but they will go after co-debtor instead. Chapter 13 filing does not pose a threat to your co-signer. In fact, as long as you keep up with the repayment program, the creditor will not contact that person at all.

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