A Chapter 7 bankruptcy is the type that discharges your debts whereas a Chapter 13 bankruptcy reorganizes your debts and sometimes reduces them. You have to meet certain standards to qualify for both bankruptcies; however, a Chapter 7 bankruptcy has more stringent standards. It is for this reason that many people consider a Chapter 7 bankruptcy first and a Chapter 13 second. However, even if you qualify for a Chapter 7 bankruptcy, it may be more advantageous to file for Chapter 13. The following are a few reasons to consider a Chapter 13 bankruptcy as a first option.
Income taxes can be reorganized
Although there are certain taxes that can be discharged under a Chapter 7 filing, income taxes are not included. But with a Chapter 13 filing, your taxes can be reorganized, so you are able to make a reasonable monthly payment and pay off your tax bill. Naturally, future income taxes will not be covered under this filing, but you will be given some breathing room in your finances.
Student loans can be reorganized
Most people are aware that student loans are not included under a Chapter 7 bankruptcy. Yes, there are exceptions. You can claim undue hardship, but this only applies to extreme financial predicaments, and you will need a good lawyer to pursue it. However, under Chapter 13, you can have your student loans reorganized, so you can make a reasonable monthly payment. In some cases, these loans may be reduced, so you will have the loans paid off at the end of the payment plan. But it is also possible that the reduced payments will create a balance still due after the payment period of the bankruptcy. But this balance owed will be much lower than the balance you currently owe, and you are likely to be in a better financial position to address the leftover amount due.
Debts that were incurred from a divorce
Although assets are usually split evenly, so can debts incurred during a marriage be split evenly evenly. This can become a burden for many individuals, but these debts are often not the kind that fall under the category allowed in a Chapter 7 bankruptcy. Mostly these are unsecured debt, but not exclusively. However, a Chapter 13 bankruptcy not only allows for a payment plan, but in some cases, your debt may be reduced.
You should not look at Chapter 13 as being a milder version of bankruptcy than a Chapter 7 filing. When you are under the burden of overwhelming debt and this debt is not going to be discharged by a Chapter 7 bankruptcy, a Chapter 13 may still have possibilities. Contact a Chapter 13 attorney service for more help.