As outlined below, Chapter 7 is designed to help a specific kind of Minnesota family. In contrast, Chapter 13 is tailor-made for other types of debt. In a nutshell, people who need to pay off secured debt delinquency, like past-due mortgage payments, should probably look at Chapter 13.
Average credit card indebtedness has dropped a little in recent years, but it is still over $9,300 per household. In most situations, around $10,000 in credit card debt is the breaking point in terms of being able to pay off that debt. Paying off less than that amount will be painful but also possible. But if a Minnesota family must pay more than four or five hundred dollars a month for more than four or five years, such a payment plan is just not feasible.
Chapter 7 eliminates credit card bills and other unsecured debt. Imagine what you could do with that extra money each month. You could spend it, save it, or do a little of both.
A brief word about credit card “run ups.” If you charged significant amounts on a card just prior to filing bankruptcy, the moneylender may object to the discharge of that debt. Bear in mind, however, that this rule is only a presumption. An aggressive attorney can still fight any objections to discharge. Essentially, if there is any evidence that the charge was not a frivolous luxury and the debtor made some payments, the fraud presumption may not stick.
Some people believe that bankruptcy completely ruins their credit rating and ability to borrow money. Indeed, most banks will not lend money to people who are in bankruptcy. But the whole “ruin your credit” thing is overblown. To be honest, if you are considering bankruptcy, your credit score is probably already very low. There is usually nowhere to go but up, and at Kain & Scott, we offer free credit repair to help you raise your score.
Perhaps more importantly, many moneylenders focus on the last 90 days. If you have paid your bills on time during that period, many Minnesota bankers will work with you, even with a bankruptcy case on your credit history. You may have to pay a higher interest rate, but you will still get the loan.
So, if a major purchase is on the horizon, Chapter 7 may be a good bankruptcy option. In most cases, the case ends after less than a year. In contrast a Chapter 13 could last between three and five years.
Chapter 13 is ideal for debtors who have the means to eventually pay off their debt. But they cannot keep up with the accelerated repayment schedule the moneylender demands. Instead, they need something more income-based.
Other times, more time to pay is not the answer. The debtor simply lacks the means to pay off all debt. Chapter 7 is designed for people whose income is below average. As of May 2018, the median income is $108,000 for a Minnesota family of four. If your income is below that figure, you are a low-income debtor that qualifies for Chapter 7.
Many people feel morally obligated to repay some of their debts. That’s still possible, even if you file a Chapter 7. One difference is that the repayment will be on your terms.
The financial storms of life include things like divorce, illness, death in the family, and job loss. Any one of them is sufficient to drive a Minnesota family deep into debt. These events usually have a snowball effect. A Chapter 13 is ideal for people who are marginally unable to pay their debts. To be eligible, the family’s secured debt must be under $1.11 million and unsecured debt must be less than $394,000.
But sometimes, misfortune follows misfortune. For example, a family member may pass away after a prolonged illness. When things like that happen, mountains of debt often pile up. Unless they live in sprawling mansions, not many families have more than $1 million in secured debt. But $300,000 in credit cards and medical bills can accumulate faster than you think. A Chapter 7 has no debt ceiling, so this pathway is the only bankruptcy choice for these families.
There are many good reasons to file a Chapter 7 instead of a Chapter 13. For a free consultation with an experienced bankruptcy attorney in Minnesota, contact Kain & Scott. We are Google’s highest-rated bankruptcy firm in the Gopher State.