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FRIENDLY, AFFORDABLE AND KNOWLEDGEABLE Chapter 7 Chapter 13 Loan Modifications

When Chapter 7 Bankruptcy is Better Than Chapter 13 Bankruptcy

Chapter 7 eliminates your unsecured debts. It is commonly called liquidation bankruptcy or liquidation chapter. Chapter 13 allows you to repay your creditors over a three-to-five-year period. This chapter is called a wage earner plan. In some instances, filing Chapter 7 is better than filing the alternative bankruptcy chapter option. Below is information about the advantages of filing Chapter 7 instead of Chapter 13.

Chapter 7 Advantages for Your Financial Situation

Chapter 7 bankruptcy is the fastest way to get out of debt for most Long Island residents. For example, the Chapter 7 process takes a minimum of three months to complete. The maximum amount of time to complete the process is six months. The actual time period depends on many factors such as how many cases were filed before your case and the complexity of your case. Chapter 13 takes a minimum of three years. If you have a longer repayment time, it’s five years before you can complete the bankruptcy process.

Other advantages of Chapter 7 Bankruptcy include:

1. No monthly payment plan. Chapter 13 requires a payment plan. A payment plan takes three-to-five years. Each month, you must pay the trustee presiding over your case a set payment. The monthly payment is determined at the start of your case. These monthly payments are distributed among your creditors.

However, filing for the liquidation chapter doesn’t require any payment plans.

2. Your debts can be wiped out in the liquidation bankruptcy. Chapter 7 won’t eliminate all debts. For example, you can’t eliminate student loans, unpaid child support, and any back taxes. It can eliminate most unsecured debts. Unsecured debts are types of credit you obtain based on the promise to repay.

3. You want to protect your property. You may lose property in this bankruptcy chapter if you have non-exempt property that can be sold. Most people don’t have the type of property that can be sold to pay their creditors. When you file a liquidation chapter, you can keep most, if not all, of your necessary property.

4. You can keep your home or car. Chapter 13 is the best option if you’re behind in your car and/or house payments. It has an automatic stay that stays in effect until the case is discharged. With the automatic stay, your lenders are forbidden from continuing or completing any legal action against you such as repossession or foreclosure.

With Chapter 7, you can keep your home and vehicle as long as you’re current on those bills.

Should You File for Chapter 7 Bankruptcy?

The best way to answer the question is with the help of one of our local Long Island bankruptcy lawyers. Until you speak to a lawyer about your financial situation, the following bankruptcy process may indicate whether you need to file for liquidated bankruptcy.

1. You don’t own a lot of property
2. You have debts such as medical bills, credit card balances and personal loans that can be eliminated during the process.
3. Your family household income isn’t more than your state median income for the same family household size.

When determining whether you qualify for either chapter, you will complete a Means Test. It’s helpful to complete the Means Test with the help of a lawyer. The test is tricky because you won’t know what to include as income. Thus, it’s important to let an attorney help you determine which chapter you can file.

It’s important to note that the higher your income, the better opportunity you have to file for Chapter 13. For Chapter 13, you need to have enough disposable income may the monthly payments to the trustee. If you have little-to-no money after paying your bills you “fail” the Means Test. This just means you qualify for the liquidated chapter instead.

Chapter 7 is not be the Best Option in Certain Situations

The liquidated chapter isn’t always the best option. For example, if you are a high wage earner, you may have a hard time qualifying for this chapter. If you have certain debts like student loans, taxes and any domestic support obligations you must repay, this bankruptcy chapter may not be an option. It won’t discharge those debts.

Chapter 13 Drawbacks

Many debtors prefer Chapter 7 over Chapter 13 because there’s no repayment option. Repayment is a major drawback because you’re required to have enough disposable income to make each monthly payment.

With Chapter 13, your case can be dismissed prior to your three-to-five-year repayment period because you’ve missed a monthly payment. If you decide to file a wage earner plan, contact your attorney immediately if you lose your job or your no longer disposable income to make the payments. Your lawyer will file a motion to try to suspend the monthly payments for a short time to get back on track. There are other types of remedies so you can keep your wage earner plan going until it is officially discharged because you’ve made all your payments.

Getting Help with Your Potential Case

This information is only the beginning of what you need to know about the discharge process. Depending on your debt, you have limited options to discharge them. Hire an attorney to guide you through the process so that you can eliminate the right bills in the correct chapter. Contact an our attorney, Adam C. Gomerman today to find out if bankruptcy is right for you.

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