SHOULD I FILE A CHAPTER 13? When You’re Behind on Debts Payments Understand All of the Options Available Before deciding Whether Chapter 13 is the Right Choice for You
BRIAN V. LEE
BANKRUPTCY ATTORNEY IN WASHINGTON DC, VIRGINIA AND MARYLAND
The United States bankruptcy code provides relief for debtors who are not able to repay their debts. There are different chapters under the bankruptcy code designed for different individuals and entities to discharge or reorganize their debt. One of the chapters, called Chapter 13, has become a very common type of bankruptcy. If you have debts that you cannot repay, you may wish to consider whether filing a Chapter 13 is the right choice for you.
SHOULD I FILE A CHAPTER 13? There are two steps to deciding if you wish to file for
Chapter 13 is significantly different from Chapter 7, which discharges your eligible debts right away after the sale of assets.
bankruptcy under Chapter 13. The first step is deciding if bankruptcy is the right choice for you at all. The second step is deciding whether Chapter 13 bankruptcy is the correct chapter of bankruptcy for you to file under.
IS BANKRUPTCY THE RIGHT SOLUTION? To decide if bankruptcy is right for you, consider the following questions: Are you repeatedly making late payments to your creditors or have you defaulted on your debts? If so, your credit is being damaged every month and bankruptcy may be a solution to stop your score from being driven lower and to allow a financial fresh start? Are you unable to make your minimum payments or are you paying only interest and not reducing the balance on your debts? If you can’t make payments and/or if you pay only interest, your debt
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balance either will stay the same or will rise. There is no use continuing to send money in to creditors every month if you are never going to be able to get out debt. Are you considering selling your home or cashing in a 401K or other retirement account to attempt to repay debts? Home equity and qualified retirement accounts are protected even under Chapter 7 bankruptcy where you are required to liquidate assets. You do not want to jeopardize your house or your financial future during retirement when a bankruptcy provides a better solution to escape the debt problems you face. Are you facing legal action such as wage garnishment, a lawsuit by a creditor, foreclosure or repossession? When you file bankruptcy, an automatic stay goes into effect. This requires creditors to stop making an effort to collect money from you. You may be able to buy time to save your home or car, and you may be able to protect your paycheck from garnishment if you file for bankruptcy.
These are just some of the different things to consider when deciding whether a bankruptcy filing is a good choice. Filing for Chapter 13 (or any chapter of bankruptcy) is a serious decision and you’ll want to make sure that you have explored your other options and have no other good solutions to get out of debt before you decide to file. An experienced bankruptcy lawyer can help you to assess whether a bankruptcy filing is the right solution for your debt issues.
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SHOULD YOU FILE FOR CHAPTER 13? If you have made the determination that a bankruptcy filing is the right choice, the next step is to decide if you should file for Chapter 13 or file under another chapter of the bankruptcy code. For consumers, the choice is almost always between Chapter 13 bankruptcy and Chapter 7 bankruptcy. If you run a small business, you may also use Chapter 13 bankruptcy under many situations as well (as Chapter 11, or business bankruptcy, is much more complicated and costly and is usually reserved for larger businesses that are reorganizing). Chapter 7 is a liquidation bankruptcy that requires the sale of some personal assets, or the closure of your business. Chapter 13, on the other hand, allows you to simply reorganize your debts and repay a portion of them without any requirement to sell assets or give up your company. When you file Chapter 13, you enter into a three to five year repayment agreement in which your debtors are paid back some or all of what they owe. For secured debts like mortgages and car loans, you’ll need to make payments in full and be caught up on payments to keep the house or car. For other debts, however, your monthly payment amount may be reduced based on your income and you can have the remaining balance of the debt forgiven at the end of the repayment term.
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Chapter 13 is significantly different from Chapter 7, which discharges your eligible debts right away. You should consider filing Chapter 13 if: You make too much money to qualify for Chapter 7. There is a means test that requires you to make income below the median in your state or have no disposable income to service debts. You must pass the means test to file Chapter 7, otherwise you’ll have few choices but to file Chapter 13. You have too many assets you don’t want to lose. Chapter 7 exempts some property, such as home equity and tools of the trade, from being sold. Non-exempt assets, however, will need to be turned over for sale to generate money for the repayment of debts. With Chapter 13, you do not lose any of your assets. You have a small business that you want to continue operating. Chapter 7 can result in the liquidation of a business while Chapter 13 can allow you to reorganize the debts and continue to operate. It is important to remember that if you are a sole proprietor, a business bankruptcy is the same thing as a personal bankruptcy and vice versa since there is no legal separation between you and your business unless you have incorporated or created a separate legal entity. Your attorney will help you to understand these and other considerations and make an informed choice about whether to file for Chapter 13 bankruptcy or whether another debt relief solution may be a better option for you.
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About the Author Brian V. Lee Serving clients in the DC-metropolitan area since 2005, attorney Brian V. Lee is licensed in Virginia and the District of Columbia. He is also licensed to practice in Maryland federal and bankruptcy courts. Brian provides client-oriented legal counsel to businesses and individuals on a wide variety of complex legal and financial issues. He is a graduate of Rutgers University in New Jersey and George Mason University School of Law.
About Lee Legal Lee Legal is a full service bankruptcy and litigation law firm with offices located in Washington, D.C. (DuPont Circle) and Virginia (Old Town Alexandria). Lee Legal provides skilled, comprehensive bankruptcy and litigation representation. Every client receives a free initial consultation. Lee Legal is a proud member of the National Association of Consumer Bankruptcy Attorneys, a national advocacy organization dedicated to the protection of the rights of consumer debtors in bankruptcy. Lee Legal is also rated by the Lead Counsel Program, designed to assist consumers in finding a pre-qualified, pre-screened attorney quickly and easily. Lead Counsel Members must pass a challenging certification process, which mandates peer recommendations, bar checks, and practice area experience. If you are facing financial difficulty or litigation, call (703) 879-2870 in Virginia or (202) 4485136 in Washington, D.C. for a free consultation.
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