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Chapter 7 and Chapter 13 Bankruptcy, which is best for me? Part I

(c) Copyright 2006 by Ted Schmidt

Did you know that even if you want to file a Chapter 7 Bankruptcy, sometimes your only choice is to file a Chapter 13?

If you are behind on your mortgage payments, do you know what would happen to you and your home if you were to file a Chapter 7 or Chapter 13 Bankruptcy?

The biggest difference is with a Chapter 7 Bankruptcy, you will lose your home to the bank which you owe the mortgage to, unless your bank is nice enough to work something out with you. But, don't hold your breath for that to happen! In contrast, if you file a Chapter 13 Bankruptcy when you are late on your house payments, you can stop the bank from foreclosing on you. While in Chapter 13 Bankruptcy, you can catch up on your mortgage payments, repay the amount owed over a period of time and keep you home. Sound good? It gets even better. You can use Chapter 13 Bankruptcy to pay off back taxes to the IRS and stop interest from being added to the taxes you already owed. What is the catch, you ask?

Well, first of all Chapter 13 Bankruptcy is harder to qualify for and it comes with a repayment plan which you must strictly follow.

Talking about back taxes, if you owe back taxes to the IRS, filing Chapter 7 Bankruptcy does not get your tax debts wiped out.

If you owe back taxes to the IRS, you usually cannot even file a Chapter 7 Bankruptcy. Most of the time tax debts cannot be discharged by filing Chapter 7 Bankruptcy. The rules on wiping out tax debts are very strict so there is really no point to filing a Chapter 7 if all you owe is taxes, unless you are sure that your debts qualify for a discharge. Otherwise, you may end up with no assets, terrible credit and the tax debts. Obviously enough, with a Chapter 13 Bankruptcy, you are more likely to have some tax debts discharged.