So you have made the decision to file bankruptcy. That’s ok! Many families have found complete debt relief through the bankruptcy process. Making the decision may have been hard, but it will hopefully put you on the path to recovering your financial freedom.
Making the decision to file is the first step. The next one is to determine which chapter of the Bankruptcy Code actually applies to your situation. In addition to helping you make the decision to file, a bankruptcy lawyer’s help will be invaluable during this phase, and all of those to come. Here are three signs that you may be filing Chapter 13.
You don’t qualify for Chapter 7 bankruptcy.
Consumer bankruptcies typically fall into two chapters, Chapter 7 and Chapter 13. The first and most obvious way to determine whether you should file Chapter 13 is if you do not qualify for Chapter 7.
The Chapter 7 process includes what is known as the “means test.” It’s not an actual test with pen and paper, but a formula that looks at your monthly income and expenses. Simply put, the test seeks to determine whether you have enough money to pay back any of your debts.
You probably know well that it can still be hard to make ends meet even when you are working. Even with a few sources of income, you simply do not have the funds to put towards paying down your credit card debt or student loans, much less to keep up with payments on your mortgage or your car.
The bankruptcy process recognizes this, so hope is not lost. If you do not qualify for Chapter 7, you may still be able to file Chapter 13 and achieve debt relief.
You are facing foreclosure.
People who face foreclosure sometimes choose to file bankruptcy to stop the proceeding. In such situations, a Chapter 13 bankruptcy may help because you can usually include past-due mortgage payments, legally called “arrears,” into the Chapter 13 repayment plan. This means you will end up paying back a percentage of those payments.
Filing Chapter 13 also means that the automatic stay preventing foreclosure will stay in effect for the duration of your payment plan period, usually three to five years. This may help you get caught back up on your mortgage, so you can reaffirm or refinance the loan once the bankruptcy is discharged.
You have a second mortgage or home equity loan you can’t possibly pay back.
Chances are that you have multiple debts piling up that keep you awake at night. If you have a second mortgage or home equity loan, and you owe more on your first mortgage than the house is currently worth, you may want to consider Chapter 13. In such cases, you may be able to include the second mortgage or home equity loan within your repayment plan. As with all other debts in the plan, once the payment period ends, the remaining debt is fully discharged.
This is a process known as “lien stripping,” and it is not available in every circumstance. A trusted bankruptcy lawyer can help you determine whether lien stripping is an option given your specific situation.
Let a professional help you.
In conclusion, it’s great that you’ve made the decision to take back control of your finances. Filing bankruptcy can be the means to get your life back on track. As with anything this important, the advice and help of a skilled bankruptcy lawyer can make all the difference in ensuring it’s the right path for you.