Sunday, February 5, 2012

Chapter 7 or Chapter 13 bankruptcy, which one is for me?

A client recently asked me what the differences are between a Chapter 7 and Chapter 13 bankruptcy are. I put this information together to provide her with what I thought is the most pertinent information if you intend to file in Arizona.

Chapter 7 will eliminate virtually all of your debt (except things that aren’t dischargeable like most taxes, child support/alimony, and most student loans). Chapter 13 merely lowers and rearranges your debt so that you pay most of it off within 3-5 years (3 years if your income is low, 5 years if it’s higher). You must be working and making a decent level of income to be eligible for Chapter 13.

2nd mortgage/HELOC
For most people, Chapter 7 is the best deal, since it will eliminate all of their debt. But Chapter 13 can be advantageous in certain situations. For example, Chapter 7 cannot discharge a second mortgage/Home Equity Line of Credit. All it can do is stop the lender from contacting you and suing you; the loan will still be stuck to your home as a lien. As long as home values are depressed, this is no big deal for most people, the 2nd lender can’t foreclose on your home since the 1st lender will get all the money. But if you have equity in your home, or plan on staying in your home for awhile and home values start going back up, this could become a problem. A Chapter 13 will allow you to fully discharge that 2nd loan by stripping it.

Vehicles
Chapter 13 is usually better if you have a car with too much equity. Arizona only exempts cars that have up to $5000 equity. If you have more equity than that, you’ll need to take out a title loan in order to get through a Chapter 7 bankruptcy. Whereas a Chapter 13 will let you keep the car and make payments reflecting the extra equity to creditors.
Note that  in a Chapter 13 if you bought a car within the past 2.5 years and are making payments on it, you must fully make the rest of those payments during the bankruptcy, you don’t get to strip them down to the value of the car.

Student loans
Student loans are generally not dischargeable unless you can show undue hardship in a Chapter 7. In a Chapter 13, you can get your payments reduced, but after the Chapter 13 is finished, you will likely have to go back to paying what you were before and you don’t get a break on the balance. But at that point, your lender might be more willing to work with you.

Chapter 13 is more expensive, I charge $2500, but the extra expense is rolled into the payments. You still only pay $995 up front before filing, plus the filing fee.

70% of people never follow through with a Chapter 13, they don’t keep up with the payments.

Additional Resources







The Alexander Bankruptcy Law Firm provides low low cost Chapter 7 and 13 personal bankruptcies. $995 Chapter 7 or $2500 Chapter 13 bankruptcies plus court filing fee. Free consultation with a compassionate attorney who will handle your case personally. Call 24/7, available to meet with you around your schedule. 602-910-6812. Conveniently located in Central Phoenix along the Camelback corridor. AlexanderBankruptcyLawFirm.com

No comments:

Post a Comment