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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.