People tend to ignore their debts. As a result, those debts soon spiral out of control, resulting in harassing calls from creditors. In time, the creditors will step up their harassment and take legal action as well; for example, you can be sued. While a legal case against you can cost you a lot in terms of your emotional, mental and even physical well-being, there is a way out: filing for bankruptcy.

Individuals have a choice of filing for either Chapter 7 or Chapter 13 bankruptcy. What are the differences between these two bankruptcies?

To file for Chapter 7 bankruptcy, your total income for 6 months cannot exceed the average household income in your state. If it does, you won’t be eligible for Chapter 7 bankruptcy. Also, if your disposable income, after eliminating all necessary expenses like rent and utility bills, is sufficient to make payments on your debts, you’re also not eligible for Chapter 7 bankruptcy. This is because the Chapter 7 bankruptcy is often viewed as a liquidation bankruptcy, and the court assumes that you cannot pay or earn your way out of your debts.

So, how does this make Chapter 13 bankruptcy a better alternative?

There are certain key factors which make Chapter 13 a better alternative than Chapter 7 bankruptcy. Keep in mind that these factors also are why a Chapter 13 is often called a wage-earner bankruptcy:

You can still pay your loans. If you have taken out a mortgage or an auto loan and were then constantly unable to make your monthly payments, Chapter 13 bankruptcy can help you make up those payments. But if you file for Chapter 7 bankruptcy, you won’t be able to do so.

You can pay off your debts. If you’re truly willing to repay your debts but are constantly harassed by credit collectors, then you must file for Chapter 13 bankruptcy. This way, you’ll be able to obtain protection from the bankruptcy court against credit collectors. The court will also provide you with a payment structure (and deadlines) by which you must pay off your debts. If you’re able to follow its guidelines, you can repay all your debts. 

You won’t lose your non-exempt property. One of the biggest reasons why people file for Chapter 13 and not 7 bankruptcy is because Chapter 13 allows you to keep your non-exempt personal property, such as your recreational vehicles, your jewelry, guns, stock investments, and the like. This is in addition to exempt property such as your primary residence and personal vehicle. Chapter 7 bankruptcy provides no such protection for non-exempt property. Chapter 7 trustees will actually seize your non-exempt property and sell it in order to satisfy the debts you owe to your creditors.

Before you file a bankruptcy, it is advisable that you hire a bankruptcy attorney who will help you through the process. Try to hire an experienced and efficient bankruptcy attorney who has dealt with crucial financial matters and can accurately advise you under which chapter you should file your bankruptcy.

This article has been contributed by Oak View Law Group. To know more about
this group, please visit: http://www.ovlg.com/