Overwhelming credit card debt, past-due medical bills and other financial hardships can leave someone unable to cover monthly expenses with their current income. Those who need help regaining control over their finances may choose to file for bankruptcy eventually.
Most people filing for personal bankruptcy will need to choose between a Chapter 7 filing and a Chapter 13 filing. A Chapter 13 bankruptcy or wage earner’s plan takes longer to complete and requires that someone make structured payments to the courts before receiving a discharge of the remaining balance on their unsecured debts.
Why would people specifically choose Chapter 13 bankruptcy rather than Chapter 7?
They earn too much to qualify for Chapter 7
Everyone filing for Chapter 7 bankruptcy has to pass a means test. After making some adjustments to your income for certain allowable expenses, you then compare your adjusted income to the state median for your household size.
If you earn an above-average wage, you may not qualify for Chapter 7 bankruptcy. Chapter 13 bankruptcy is a good solution for those whose income is too high for liquidation proceedings.
When they own valuable property
People call Chapter 7 proceedings liquidation bankruptcy because it requires that the court-appointed trustee sell off some of your assets before the courts will approve the discharge of unsecured debt.
Although you can protect some property with exemptions, if you have a lot of equity in your home or other valuable personal property, those assets could be at risk in a Chapter 7 filing. You can protect all of your personal property in a Chapter 13 bankruptcy because there is no liquidation requirement.
When they want to do right by their creditors
For some people, choosing Chapter 13 bankruptcy is a matter of pride or honor. They want to make a concerted effort to repay their creditors prior to the discharge of their debts.
Their goal may not be the discharge but rather to stop aggressive collection activity, like a lawsuit. The repayment plan in a Chapter 13 bankruptcy will last for several years and reduce what someone owes creditors.
Learning more about Chapter 13 bankruptcy can help determine if it would be the right option for you.