In Chapter 7 bankruptcy cases, the likely outcome is a discharge of debts. In a Chapter 13 bankruptcy, the end result is far more varied.
For people who are in a position to accomplish their financial goals using a Chapter 7 bankruptcy, the process takes just a few months from beginning to end. Most bankruptcy attorneys can figure out your exemptions, attend to thorny issues, and help you navigate the meeting of creditors.
It’s not a certainty, of course. Not all bankruptcy attorneys are created equal, and those who are filing bankruptcy without a lawyer are far more likely to be unfamiliar with the planning and preparation that goes into even a routine Chapter 7 case.
Beyond that, those using bankruptcy petition preparers are often putting their fates into the hands of people who exceed the bounds of their abilities.
Still, for many the Chapter 7 process is a straight road to discharge.
Contrast that with Chapter 13 to see the difference.
Chapter 13 Bankruptcy Has More Moving Parts
When filing a Chapter 13 bankruptcy, there are more puzzle pieces to move around the board. You may have a mortgage or car loan, some taxes that need to be paid in full sitting alongside others that can be discharged, or domestic support obligations in addition to other debts.
You may be filing for Chapter 13 because your income is too high for a Chapter 7, or because you’ve got too much left over at the end of the month in spite of an income that is below the median.
Perhaps you opted for Chapter 13 because you’ve got assets that you’d lose if you chose Chapter 7.
Taken one at a time, each issue can be complex. Taken together, the situation is one fit for a Grand Master of chess.
Your Differing Goals In A Chapter 13
A Chapter 13 bankruptcy involves repayment of certain debts over a period of time, and that goal is far different than that of a Chapter 7.
Perhaps you want to repay mortgage arrears or a past due car loan over time. Maybe you need to get a handle on your tax debts or child support. For some, it’s a matter of protecting assets or simply reorganizing financial obligations.
In some parts of the country, you may even opt to file a Chapter 13 on the heels of a Chapter 7 discharge for no other reason than to get rid of an underwater second mortgage.
Contrast that with a Chapter 7 bankruptcy, where the goal is usually to simply wipe our obligations.
Clearly, the goals in a Chapter 13 vary more widely. So much so that it may not matter to you whether you get a discharge at the end of the case.
The Changing Tide
A Chapter 13 bankruptcy typically lasts for 3-5 years. Though the repayment plan can be modified as your circumstances change, there’s only so much you can do.
For example, if you lose your job during the term of the Chapter 13 Plan and don’t pick up regular income quickly enough then you and your lawyer may decide to dismiss your case rather than allowing it to be dismissed.
On the flip side, perhaps you come into enough money to pay off your debts without the need for bankruptcy. There again, dismissing the case may be a good idea.
Finally, you may have decided to go into Chapter 13 to stop a foreclosure and later opt to let the house go. Maybe that bankruptcy doesn’t hold the same appeal it once did.
Your Lawyer Sets You Up For Success – The Rest Is Up To You
When you walk into a lawyer’s office for that first critical meeting, it’s your job to provide all the information needed to craft a Chapter 13 Plan that is reasonable, rational, and bound for success.
Once the case is filed, it’s up to you to keep within the bounds of the Chapter 13 Plan. If things change, you’ve got to communicate with your attorney to plan your next step.
Regardless, remember that the likely outcome of a Chapter 13 bankruptcy can’t be realistically predicted when you first file your case. We can plan, but the end result is often unknown until the future becomes the present.
Image credit: IRRI Images
Learn Your Student Loan Rights (FREE)
Enter your email address to get my free 6-part Student Loan Roadmap delivered to you by email.