Chapter 7 vs. Chapter 13 Bankruptcy: Which is Preferable?

There are a number of reasons that a Minnesota bankruptcy attorney may advise you to get a Chapter 13 bankruptcy rather than a Chapter 7 bankruptcy. Here are a few examples of where filing under Chapter 13 is preferable over filing under Chapter 7:

You do not qualify for a Chapter 7 bankruptcy because you filed for Chapter 7 bankruptcy within the past eight years. You can only file Chapter 7 bankruptcy once in an eight year period. See 11 U.S.C. section 727(a)(8)-(9).

You are behind on a mortgage or car loan and you want to keep your home or car. Chapter 7 bankruptcy may eliminate debt, but it doesn’t stop a lender from repossessing your vehicle or foreclosing on your home.

You have debts that are not dischargeable in a Chapter 7 bankruptcy such as tax debt, alimony, child support, or student loans. By filing a Chapter 13 bankruptcy, you will be allowed more time to pay these debts, but note that interest will continue to accrue during this period.

You own property that you would lose in a Chapter 7 bankruptcy (non-exempt property) that you can keep in a Chapter 13 bankruptcy. You can often buy back this property in a Chapter 7 bankruptcy if you can borrow money from family or friends, but if you can’t, Chapter 13 may be the only way to keep that property. In this way, Chapter 13 bankruptcy can be especially useful if you jointly own real estate or other property with family members or friends.

Someone co-signed on your debt and you don’t want them to get stuck with that entire debt. Although Chapter 7 bankruptcy may discharge the debt for you, if someone co-signed on your credit card or other debt, that person will get stuck paying your bill. However, a Chapter 13 bankruptcy will protect the person who co-signed on the debt until you have a chance to repay the debt. See 11 U.S.C. section 1301. Still, keep in mind that interest will continue to accrue on the debt.

You can get more time to repay your secured debt (debt that is tied to collateral or security agreements such as a car loan).

You want to control the claims in your bankruptcy case. In a Chapter 13 bankruptcy, you can challenge the legitimacy of claims that you owe money and fight out issues (in the court) with creditors (people who claim you owe money).

You can later convert your Chapter 13 bankruptcy to a Chapter 7 bankruptcy without being subject to the Means Test. The Means Test is only used for cases filed under Chapter 7 bankruptcy. See 11 U.S. C. section 707(b)(3). Further, 11 U.S.C. section 348 does not include section 707 when cases are switched from Chapter 13 to Chapter 7. This is useful when you cannot qualify for Chapter 7 bankruptcy based on your last six months of history.

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