When should you consider Chapter 13 bankruptcy?
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When should you consider Chapter 13 bankruptcy?

| May 11, 2021 | Bankruptcy |

Most individuals who find themselves considering bankruptcy will file for either Chapter 7 or Chapter 13 bankruptcy. Chapter 7 bankruptcy requires the liquidation of certain assets but also means a quick discharge of unsecured debt for those unable to meet all of their financial obligations.

Chapter 13 bankruptcy takes longer for discharge to occur because the individual filing has to complete a repayment plan first. There are typically no requirements to liquidate personal property in a successful Chapter 13 bankruptcy.

Your personal financial situation has a strong influence on which form of bankruptcy will be best for you. When is Chapter 13 the better option?

When you have a higher than average income

Chapter 7 bankruptcy does not require that an individual repay their creditors prior to discharge unless they have to sell some of their property. To prevent people from possibly abusing this form of bankruptcy, the law restricts it to only those below the state median income.

To determine if you qualify, you reduce your income by certain necessary expenses and then compare that adjusted income amount to the state median. If you have an income above the median income for your household size in Ohio, you likely won’t qualify for Chapter 7 bankruptcy but may still qualify for Chapter 13 proceedings.

Its inclusivity of those making higher than average wages is one reason why people call Chapter 13 bankruptcy a wage earner’s plan.

When you have significant personal property

Perhaps you have more equity in your house then you can protect from liquidation in bankruptcy. Maybe you own a cabin that you would have to get rid of or other property that has financial and personal value that makes you want to not liquidate it. Even value in your vehicle could be subject to creditor claims and require that you refinance to use that value for repayment before your discharge.

Unlike Chapter 7 bankruptcy which can end your ownership of certain valuable items, Chapter 13 bankruptcy poses no threat to your personal property. When you have valuable assets that you don’t want to lose, a Chapter 13 filing lets you protect that property while still working toward a discharge of the debts that you can’t control. For those with significant personal property or above-average income, Chapter 13 bankruptcy may be the better option.

 

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