Two Reasons You'll Want To File Chapter 13 Instead Of Chapter 7 Bankruptcy
Posted on: 6 March 2023
Many people prefer to file chapter 7 bankruptcy because it wipes out almost all their debts, essentially letting them start over financially. However, it's not always the best option. Here are two times when filing chapter 13 bankruptcy is better for your present and future.
You Want to Protect Your Cosigners
While chapter 7 bankruptcy has great protection for petitioners, it doesn't do anything to shield cosigners from creditors. The automatic stay that stops collection activity while your case is active doesn't cover co-debtors, and creditors will immediately go after any and all cosigners to get the debts paid.
In a chapter 13 bankruptcy, though, co-debtors are covered by the automatic stay. Since petitioners pay off debts with this plan, the court doesn't want creditors double dipping by also collecting money from cosigners. Thus, co-debtors don't have to worry about creditors coming for them until after the case concludes and only if the debt wasn't fully paid by the plan.
Unfortunately, not all cosigners are eligible for this protection. If the cosigner received the benefits of the loan (e.g. used the money), the debt was incurred as a normal part of the cosigner's business dealings, or the debt wasn't included in the plan, then the automatic stay doesn't apply. Discuss the issue with an attorney who can suggest alternative ways to protect your cosigners from creditors when you file bankruptcy.
You Have Debts that Won't Be Discharged with Chapter 7
Chapter 7 bankruptcy can eliminate a lot of debts but not all of them. Student loans, child support, and certain taxes are all debts that survive this type of bankruptcy. Your only recourse if you're still not in a position to pay them after your chapter 7 case ends is to turn around and file chapter 13 and take care of them that way.
The added benefit of filing chapter 13 is that it can discharge some debts chapter 7 can't. For instance, paying non-dischargeable taxes with a credit card makes that credit card debt also non-dischargeable with chapter 7, but it will be completely wiped out at the end of a chapter 13 case.
A bankruptcy attorney can advise you on which debts will qualify for discharge in a chapter 13 case, so it's a good idea to discuss your financial situation with someone in the field. For more information about this, reach out to a chapter 13 bankruptcy attorney.
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