Why Choose Chapter 13 Over Chapter 7 Bankruptcy: A Comprehensive Guide

At James H. Wilson, we understand that the decision to file for bankruptcy is a significant one, and choosing the right chapter under the U.S. Bankruptcy Code is critical. While Chapter 7 bankruptcy offers the appeal of wiping out qualifying debts entirely, there are circumstances where Chapter 13 could be a more advantageous path for our clients. Here’s why you might consider Chapter 13 bankruptcy:

1. Chapter 7 Isn’t an Option for Everyone

If you have previously been granted a discharge under Chapter 7 in the last eight years, or Chapter 13 in the past six years, you are ineligible to file for Chapter 7 again. Moreover, changes to the bankruptcy laws in 2005 introduced stricter requirements, including passing a “means test.” Under the means test, if your income is above your state’s median for a household of your size, and you have enough disposable income to repay some debt through a structured repayment plan, Chapter 7 might be off the table.

2. Income and Expense Calculations Require Careful Attention

Navigating the bankruptcy laws can be daunting, especially with the intricate calculations necessary to determine eligibility. For example, the means test requires an understanding of what constitutes “disposable income” and “current monthly income.” When you consult with us at James H. Wilson, we’ll help clarify these terms and provide guidance through the complexity of Form B22A, which is crucial for determining your qualifications for bankruptcy relief.

3. Home and Vehicle Payment Arrears

One compelling reason to file for Chapter 13 is if you’re behind on your mortgage or car loan payments and wish to catch up. Chapter 7 doesn’t allow for the restructuring of these arrears, but Chapter 13 does. Under Chapter 13, you’ll potentially reinstate the original agreements and keep these assets, which are often essential to maintaining your livelihood.

4. Non-Dischargeable Debts: Taxes, Student Loans, and More

For debts that Chapter 7 cannot erase — such as certain tax obligations and student loans — Chapter 13 offers a viable solution. Our team can incorporate these obligations into a manageable Chapter 13 repayment plan, allowing you to pay them off gradually.

5. A Commitment to Debt Repayment

For those who have the means and a deep-rooted sense of commitment to paying off their debts, Chapter 13 provides the shield of bankruptcy court while creating a structured payback plan.

6. Protecting Your Assets

Chapter 7 bankruptcy could lead to the surrender of nonexempt property to the bankruptcy trustee for sale and creditor repayment. If you possess nonexempt assets that are too valuable for you to relinquish, Chapter 13 offers a way to keep them by repaying debts using your income rather than your assets.

7. Preserving Co-Debtor Relationships

Joint debts can create complications in a Chapter 7 filing, potentially leaving co-debtors vulnerable to creditor repayment demands. Chapter 13, however, offers protection to your co-debtors as long as you adhere to your payment plan terms.

At James H. Wilson, we are committed to helping you navigate the complexities of bankruptcy with empathy and insight. Should you find yourself contemplating whether Chapter 13 is the appropriate route for you, please don’t hesitate to contact us at 804.740.6464 to schedule a consultation. Together, we can seek the financial fresh start you deserve.