It all seems like greek to me right? Should I file a chapter 7 or chapter 13 bankruptcy? Which one makes the most sense for me? Which one is better for me? Isn’t there an easy way to tell?
At Kain & Scott our Minneapolis Bankruptcy Attorneys have met with literally tens of thousands of Minnesotans since 1972, and we know a thing or two about what ours guests are thinking about. Most of our guests know they need help but they are not sure which is which and which bankruptcy makes the most sense for them and their family. I just realized that was a lot of “which” words to use in once sentence. Ha!
But seriously- you know you need to be looking at bankruptcy but you are confused on which one makes the most sense for you. There are some sort of road markers to use in determining whether you should file a chapter 7 or chapter 13 bankruptcy. Some of this is real basic stuff- like a smell test.
1) DO YOU HAVE MONEY LEFT OVER AFTER YOU PAY YOUR REGULAR BILLS?
A real simple way of determining whether you should file a chapter 7 or chapter 13 bankruptcy is a simple budget. Many people know that if your income is over the states’ median income for your family size there is a presumption you will be filing a chapter 13 bankruptcy (repayment plan) unless you have a negative budget after going through a government means test.
But, for me, whether you are over the median income or not, that does not tell the whole story. No sir- what tells the whole story is your own budget. If your income is under the median income but you live at home, and have no house or rent payment, no car payments, no children so no child care or child support and you pay no utilities or food expenses, chances are you will be required to file a chapter 13 bankruptcy. Why? Because you have the ability to make a payment back to your creditors.
It’s all about your ability to pay creditors back something. On the other hand you might have a person who is over the median income but because of large expenses, will be filing a chapter 7 bankruptcy instead of a chapter 13. If you take your net income- what you actually bring home- and deduct mortgage/rent, utilities, phone, internet, food, clothing, out of pocket medical expenses, transportation expenses, car payments, school expenses, daycare, auto insurance, pet expenses, modest entertainment, grooming and personal toiletries, and charity expenses, and you have nothing left over, assuming these expenses are all reasonable and necessary, you will likely be a chapter 7 bankruptcy.
If you have done this analysis and you still have money left over, you likely will be filing a chapter 13 bankruptcy (3-5 year plan). Either way, you get significant relief. However, credit wise, you are almost always better off in a chapter 7 bankruptcy. That’s because you are debt free in a shorter period of time.
2) ARE YOU BEHIND ON YOUR MORTGAGE OR CAR PAYMENTS?
Chapter 7 bankruptcy is a wonderful tool to get your life back. However, a chapter 7 bankruptcy cannot solve a problem like mortgage arrears or vehicle arrears. If you live in Minneapolis and you are behind on your mortgage and the mortgage company is threatening a foreclosure sale in 2 weeks, we can stop that foreclosure sale by filing a chapter 13 bankruptcy and we can spread your mortgage arrears out over a 60 month repayments plan.
Once the plan is filed with the bankruptcy court, you continue to make payments on your mortgage going forward but the arrears that you owed at the time of filing are paid back over the life of a 60 month plan in smaller installments. Slick uh? We think so too!
So, if you are behind on your mortgage payments, chapter 13 is a great way to cure those arrears and keep your home.
The same holds true for vehicle arrears. If you are in danger of losing your vehicle because you are behind, the filing of a chapter 13 bankruptcy prevents the creditor from taking your car and the plan allows you to cure the arrears over time.
3) ARE YOU IN DANGER OF INCURRING NEW DEBT?
Many of our guests at Kain & Scott in Minneapolis have two problems. One, they can not pay the bills they presently have. Two, they are worried about incurring new debt after the bankruptcy is filed. I recently met with a 27 year old who normally would be a chapter 7 bankruptcy. However, he told me he has no health insurance and he has cancer. Why would we put him in a chapter 7 bankruptcy knowing he will certainly incur new debt after filing bankruptcy?
Instead, he filed a chapter 13 bankruptcy, his payments were very modest, and we are able to convert his case to a chapter 7 bankruptcy and roll in whatever debt was incurred after he filed his chapter 13 bankruptcy to a chapter 7 bankruptcy. He gets the protection he needs now from his creditors and yet he gets the protection of getting rid of debt he hasn’t even incurred yet!
Or, we might have a guest who says look- I have a business but my situation is highly precarious. I may incur new debt after I file. You can see how filing a chapter 13 bankruptcy affords protection to those who strongly believe they may incur new debt after the bankruptcy case is filed.
CONCLUSION
There are many things to consider when looking at whether to file a chapter 7 or chapter 13 bankruptcy. But, the above guidelines are real simple guideposts you can use to see whether your plinko chip will fall into a chapter 7 or chapter 13 bankruptcy.
Whether our guests file chapter 7 or chapter 13 there is significant relief they feel immediately after filing the case. To be honest with you, I think too many of our guests get caught up on which one they should file.
Need Help? Contact Our Minneapolis Bankruptcy Attorneys
An experienced Minneapolis Bankruptcy Attorney can guide you through what makes the most sense for you and your family. Keep in mind you are always the boss. I might recommend you file a chapter 7 and you might say sorry- I want to file a chapter 13. At Kain & Scott, we know who are boss is!
I would venture to say 2/3's of our case filings are chapter 7's and 1/3 are chapter 13's. Everyone’s case is different. Contact our Minneapolis Bankruptcy Attorneys and we will help you determine what would be best for you.
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