Reasons to File a Chapter 13 Bankruptcy

There are many reasons why people choose to file a Chapter 13 instead of a Chapter 7. The first reason for filing a chapter 13 is that you may have too much income to qualify for a Chapter 7. Under the new Bankruptcy Code your average current monthly income (CMI) for the six months prior to filing must be less than the median income in your state for the given size of your family. You can go to the U.S. Trustee's website, www.usdoj.gov/ust and click on "Means Testing Infomation" to see the median income in your state for the size of your family. Your disposable income (income minus expenses) can be another factor that leads to a Chapter 13 filing. If your disposable income exceeds $166.66 per month or exceeds $100 per month and would repay more than 25 of your unsecured creditors over a five year period, then you are not eligible to file a Chapter 13 under the reformed bankruptcy laws. This is referred to as the "means test" and in essence asserts that if you have the means to repay your unsecured creditors, then you should be doing so. Another reason statutory reason for people filing a chapter 13 is that for people who have received a Chapter 7 or a Chapter 13 discharge with the last six years they are not eligible to file a Chapter 7. The reason for this is that after you are only able to receive one discharge every seven years. The filing of the Chapter 7 would be moot, since you would not be entitled to any relief via a Discharge Order.Prehaps the most common reason for filing a chapter 13 is that you are behind on a mortgage or car loan payments. Chapter 13 bankruptcy is the only consumer filing that allows for you to enter into a repayment plan with such creditors and make up past due payments as well as reinstate the orginal agreement between you and the creditor. This is extremely important to people seeking to use bankruptcy to protect their assets from foreclosure and repossession. Should you wish to keep property that is nonexempt, filing a chapter 13 could be your only hope. In Chapter 7 liquidations nonexempt property is sold by the Trustee of your case to dispurse to your unsecured creditors.Individuals that do not have substanial past due secured debts or unsecured debts, but do have large priority debts (IRS, student loans, past due child support, etc) are allowed file a Chapter 13 and halt all attemts to collect on such debts. Bankruptcy stops wage garnishments (both federal and state) and allows people to become financially sound before they resume their obligations. Many bankruptcy filers harbor a desire to repay their debt but lack the means to do so. Chapter 13 allows for people to fulfill that desire and emerge with better credit too. Another advantage to paying your debts in their entirety is that it removes all personal liability from people who might have cosigned on your debts. If a debt is discharged in a bankruptcy, then creditors will still pursue codebtors for repayment. Placing the burden of your actions on someone else is something many people are very reluctant to do.

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