The consensus is filing a Chapter 7 Bankruptcy is better than filing a Chapter 13 Bankruptcy. Why? I know this is ironic but Chapter 7 Bankruptcy looks better for your credit profile than Chapter 13 bankruptcy. Why? Because in Chapter 7 Bankruptcy, you get a discharge in 4 months whereas in Chapter 13 Bankruptcy you are in a repayment plan for 3-5 years before you get a discharge. This is why most of our clients prefer to file Chapter 7 Bankruptcy versus Chapter 13.
However, if you can make payments back to your creditors you must file Chapter 13 Bankruptcy, yes, even if your income is below the median income in Minnesota. Being above or below the median income in Minnesota is only part of the test. Suppose you are below the median income but you have no rent, no vehicle payment, no child support, no utilities and you earn 65k per year as a single person. Would you have the ability to make payments back to your creditors if you earned 65k per year but had none of the hefty expenses most people have? Yes.
So forget about whether you are above or below the median income (yes, this is one criteria). However, it is not the only criteria to determine if you are required to be in a Chapter 13 Bankruptcy versus a Chapter 7 Bankruptcy. It is important to remember, that you get relief in bankruptcy. I tell people you will never have a payment you cannot afford to pay in a Chapter 13 Bankruptcy because no one wins if you fail.
What happens if you file a Chapter 7 Bankruptcy and you can make payments back to your creditors? The US Trustee has the obligation to audit every case filed. If the UST determines, after conducting an investigation, you should be in a Chapter 13 Bankruptcy, the UST will likely file a motion asking the court to dismiss and/or convert your case to a Chapter 13 Bankruptcy.
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When the time is right, or when you are ready, reach out to Minnesota’s most kind and helpful bankruptcy law firm by going now to www.lifebacklaw.com. You will be so thankful you did.
