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

(c) Copyright 2006 by Ted Schmidt

Overall, filing for Chapter 13 Bankruptcy is less drastic than Chapter 7. With Chapter 7 Bankruptcy, your assets are taken away such as your home or other non exempt assets.

Although, the debts are gone, you lose most of your assets with Chapter 7 Bankruptcy. On the other hand, your debts are not wiped clean with Chapter 13 Bankruptcy but you are given a second chance to repay your debts in most cases. (With an ugly scar on your Credit Report, of course.)

Choosing between Chapter 7 and Chapter 13 Bankruptcy can be difficult. This article has outlined four differences between Chapter 7 and Chapter 13 Bankruptcy. This is only the tip of the iceberg, however, and there are many more differences on our website; some that favor Chapter 7 and others Chapter 13. Choosing the one that is right for you should not be taken lightly, so you owe it to yourself to learn more about the bankruptcy process.

Ted Schmidt is a Real Estate investor with a few major bankruptcies in his past. He came out ahead and would like to share his knowledge and thoughts on the subject. For more information on bankruptcy, especially the differences between Chapter 7 and Chapter 13 Bankruptcy, browse other sections of our Repair Credit Score website.

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

(c) Copyright 2006 by Ted Schmidt

When you have enough income for Chapter 13 Bankruptcy, you cannot file Chapter 7 Bankruptcy.

In 2006 there have been some major changes to the bankruptcy law, which have made it harder for people to file Chapter 7 Bankruptcy. Basically, if you are able to file Chapter 13 Bankruptcy, you must do so! No longer do you have the choice. You cannot file Chapter 7 if your income is more than your state's median income level, for example. If you intentionally file for Chapter 7 when you should have filed for Chapter 13 Bankruptcy, you will be penalized. (And penalization by the IRS is never a good thing.) If the bankruptcy court finds out that you have enough income to successfully complete Chapter 13 Bankruptcy, your Chapter 7 filing will be dismissed.

Some people file bankruptcy even though they have valuable real estate property. To avoid losing the property, filing for Chapter 13 and complying with the repayment plan is preferred to filing for Chapter 7.

Chapter 7 Bankruptcy will take away any non exempt real estate property unless either of the followings happens. The first is if you can arrange to swap the real estate property with an exempt property of similar value. The second is you can pay the bankruptcy trustee the market value of that real estate property. Just as in the case of the mortgage payments, you can alternatively file Chapter 13 Bankruptcy, catch up on the debt owed, and follow your repayment plan and keep the real estate property.

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.