You already know you need to file bankruptcy, the question is which one. You have summoned the courage and anxiety to deal with the debt problem for good and move on with your life. At Kain & Scott, we are very proud of you! Most of our Duluth, Minnesota guests, once they get past this, wish they would have reached this point much earlier.
But, flowers bloom at different times. I reach decisions sometimes after other people would and sometimes before other people. Big deal. The point is you have reached the decision to get your life back and move on from overwhelming debt. To this day, I have never had a person wish they had not filed bankruptcy. They always regret waiting so long.
So, once you reach the point where you need to file, how do you know which bankruptcy is best for you? There are some things to point you in the right direction. But first, let’s dispel a myth right now.
WILL MY CREDIT LOOK BETTER IF I FILE A CHAPTER 13 BANKRUPTCY?
It is a rather obvious question isn’t it? We are brought up to believe that making payments back to your creditors always means it looks better on your credit right? Wrong! You see, in a Chapter 13 Bankruptcy, you do make payments back to your creditors over a 3-5 year plan but that does not mean that it looks better on your credit.
Ok, so then are you telling me if I don’t make payments back to my creditors it will look better on my credit if I file a Chapter 7 Bankruptcy? Yes! Why? Let’s think about it for a second. In both chapter 7 and chapter 13 bankruptcy cases, bankruptcy is on your credit report for 10 years- period!
In chapter 7, at the end of 4 months, your debts are wiped out forever, tax free! In a chapter 13 bankruptcy, technically, you are still liable for your debts until you receive a discharge in 3-5 years. Would a prospective creditor prefer to lend you money when you are debt free or still owe the debt? Of course, when you are debt free! So, if you file a chapter 7 bankruptcy, and wipe out your debt, in my opinion, you improve your credit faster than making payments in a chapter 13 bankruptcy.
Sometimes, life is not the way it seems. You would think making payments back to your creditors would look better than a Chapter 7 Bankruptcy where you make no payments and the debt is wiped out. My theory is prospective lenders don’t care if you pay other creditors, they care if you pay them!! Chances are if you have no debt and can’t file again for 8 years, the prospective creditor is more confident about getting paid back.
With this caveat, we begin our analysis of which bankruptcy you should file.
FILING A CHAPTER 7 OR 13 IS DETERMINED BY YOUR BUDGET
In a simple statement, if you have the ability to pay part of your debt back, you must. Easy right? Forget about the median income or the means test you hear a lot about. The reality is if you have the ability to pay some of your debt back and don’t, the U.S. Trustee's Office in Duluth will bring a motion to dismiss or convert your Chapter 7 Bankruptcy to a chapter 13 bankruptcy.
You might make $13.00 an hour full time and still have to file a chapter 13 bankruptcy. Why? Well, suppose you live at home and you don’t pay rent, utilities, food, or transportation. Suppose your only expense is a $100.00 cell phone bill and clothing which costs you another $100.00 a month. If you live in Duluth, Minnesota and you want to file a chapter 7 bankruptcy but you have the ability to pay back some of your creditors like this with disposable income, you will need to file a chapter 13 bankruptcy.
The example above is very rare but shows the point I am trying to make. It’s about your ability to pay and it can work both ways. For example, say your income is way over the state median income but you have enormous expenses. Say your house payment is $3k a month and your medical expenses exceed 2k a month. Despite being over the median income, because of your expenses, you may still be able to file a chapter 7 bankruptcy.
OTHER REASONS TO FILE A CHAPTER 13 BANKRUPTCY
There are plenty of other reasons to file chapter 13 bankruptcy.
First, assume you have assets you would lose if you file a chapter 7 bankruptcy. You don’t lose any assets in a chapter 13 bankruptcy but what you pay back to your creditors will be influenced by the size of your assets that cannot be protected in a chapter 7.
Second, if you are behind on home or auto payments, filing a chapter 13 bankruptcy allows you to cure those arrears and start making timely payments again so you don’t lose your home or auto.
Third, we have guests who say sometimes they have two problems. One, they have debt they can’t pay now. Two, but they are also worried about incurring new debt after the bankruptcy is filed. For example, maybe they have cancer and no health insurance. The beauty of a chapter 13 bankruptcy is you are not married to it. We can convert your chapter 13 bankruptcy to a chapter 7 bankruptcy and add any debt you incurred after your chapter 13 bankruptcy case was filed onto your chapter 7 bankruptcy. It’s like having an insurance policy against a catastrophe.
Fourth, some people really feel a sense of obligation to repay some of their debt. Remember, most of our guests only pay back pennies on the dollar to their creditors in a chapter 13. If you have 50k in credit card debt and only 5k gets paid back the rest of the debt gets wiped out, tax free, forever! POW!
CONCLUSION
It all starts with a free, no obligation consultation. That is where you will get clarity from an experienced Minnesota Bankruptcy Attorney. At Kain & Scott, we do the two-step with our guests. We help our guests step 1) get rid of debt and step 2) repair their credit fast with our unique program.
For our Duluth, Minnesota guests, we start out by having a free consult by phone, skype, or face time. When the time is right, or when you are ready, reach out to Minnesota’s bankruptcy help line at www.kainscott.com. You’ll be glad you did!
