When most people think of bankruptcy, they automatically think of a Chapter 7 plan for debt relief because it’s designed to eliminate most consumer debt.  When you’ve been through the wringer not able to pay people on time, a “clean slate” discharge of all unsecured debts certainly has its appeal.  But I know for a fact that if you take the time to consider the nature of your debts, your recent income, and what assets you want to try to hold onto, you might decide that a Chapter 13 repayment plan has more benefits in your situation.  For instance, here are five points to think about:

1.     Income:  Just because you have regular income from a job or business doesn’t necessarily mean freedom from debt problems.  The most recent six months prior to your bankruptcy filing will be used to determine your average monthly income.  Then your average monthly income is compared to the median monthly income in your state.  If your average income exceeds that figure, then Chapter 7 is not an option available to you.  If you’ve just lost a job and know that a Chapter 7 is best in your case, then you may have to wait a few months to file, so that the average monthly income is based on your recent, lower income.

2.     Assets.  If you have assets to protect, such as a house or car, you need to understand allowable assets exemptions in your state.  If your assets exceed the exemptions, which often allow for only the most basic of accommodations, then you may want to consider how a Chapter 13 will enable more asset protection compared to Chapter 7.

3.     Need time to catch up.  If you are in arrears on house and/or car payments, a Chapter 13 will help you reorganize that arrearage over time, while by filing Chapter 7, you need to re-affirm the debts and catch up the arrears right away.

4.     Debts that need a payment plan.  If you have debts that can’t be discharged, such as student loans or alimony, you can include them in a Chapter 13 repayment plan.

5.     Budgeting is a good habit.  Filing and completing a Chapter 13 debt repayment plan is perfect practice for living on a budget.  Realistically speaking, to have any chance of rebuilding a good credit rating after bankruptcy, you will likely have to live within a budget for several years after your bankruptcy is completed.

The advice of an experienced bankruptcy attorney can help you determine your options and action plans in light of your income, assets, and the nature of your debts.  This analysis will enable you to best use the provisions under a Chapter 7 or Chapter 13 bankruptcy to achieve your financial goals.

Please contact our law firm in Sacramento office 916-313-9069 or via email at info@california-bankruptcyattorney.com