Filing for bankruptcy is a great way to fix seemingly unfixable financial problems. Two common forms of bankruptcy are Chapter 7 and Chapter 13 bankruptcy — each of which comes with its own set of pros and cons.
Chapter 7 bankruptcy means receiving your discharge quickly, discharging unsecured debts without losing your income for the next three to five years, and there are no debt limits to qualify for. Unfortunately Chapter 7 does not let you force creditors to give you extra time to pay non-dischargeable debts, or force them to allow you to cure a mortgage or car loan arrearage over time, or strip unsecured second mortgages.
Chapter 13 benefits include being able to force creditors to let you cure a mortgage or car loan arrearage over time, force them to give you extra time to pay non=dischargeable debts, and the ability to strip unsecured second mortgages. Disadvantages include not receiving your discharge quickly, not being eligible if you exceed the debt limits, and being committed to a plan that ties up your income for three to five years.
While filing for either Chapter 7 or Chapter 13 can come with its disadvantages, Chapter 20 bankruptcy might prove more helpful than filing for 7 or 13 alone. Chapter 20 bankruptcy is generally the term for filing a Chapter 13 bankruptcy right after completing your Chapter 7 bankruptcy. Choosing this route can be helpful in a handful of ways.
Filing a Chapter 7 bankruptcy first might help if you need more time to cure an arrearage on a car loan or mortgage but your debt exceeds the debt limits under Chapter 13. Filing for Chapter 7 first can reduce your overall debt, which may qualify you for Chapter 13 and effectively give you the extra time you needed. It is important to note that you will not be able to get a second discharge in the Chapter 13 bankruptcy.
Another benefit to Chapter 20 bankruptcy is it can provide you with more money to apply to an arrearage or non-dischargeable debt. Filing Chapter 7 first reduces your unsecured debt and more of your income will be available to put towards your arrearage or non-dischargeable debt.
Chapter 20 can also be beneficial if you want to utilize lien stripping, which is a Chapter 13 process that can remove second or third mortgages and make the debt unsecured. Not all bankruptcy courts allow this.
Whether choosing Chapter 7, Chapter 13 or Chapter 20 bankruptcy, it is important to consult an experienced bankruptcy attorney. The Law Office of Joel R. Spivack can provide you with sound advice about managing your debt.
Call 856-488-1200 today for a free initial consultation.
The articles on this blog are for informative purposes only and are no substitute for legal advice or an attorney/client relationship. If you are seeking legal advice, please contact our law firm directly.