Why on Earth would anyone want to file a 13 when a 7 gets rid of ALL the debt? Sometimes, a debtor does not qualify for a 7. Ever since the federal government re-wrote the bankruptcy laws in 2005, it is tougher to qualify for a 7 than it used to be. If your income exceeds a certain level, the court will not permit you to file a 7. This makes your decision easier.
You either file a 13 or do not file. But sometimes someone does qualify for a 7, but a 13 is still a better option. Here are some examples of where a 13 makes more sense to file than a 7:
1. Filing a 7 will often result in forfeiture of assets If a debtor has a lot of assets (paid off vehicles, stocks, bonds, collectibles),
filing a 7 will often result in forfeiture of those assets. A 13 repayment plan may very well allow the debtor to get rid of his/her debt but keep those assets.
2. A 13 can potentially get rid of a 2nd mortgage ONLY in a 13 can a debtor potentially get rid of his/her 2nd mortgage on a primary residence. Be sure to ask a qualified bankruptcy attorney whether you meet the requirements to have your 2nd mortgage stripped off of your home.
3. Can help you keep your home or car If a debtor has fallen behind in his/her mortgage or car payments, a 13 plan can get them caught up and help them keep their home or car. If you file a 7 while behind on your mortgage or car payments, the creditor can immediately file suit to take the home or car back.
4. A federal judge can lower your interest rate A federal judge can lower an interest rate on a car loan in a 13, but not a 7. If you have a car loan with a high interest rate, and you really want to keep the car, a 13 might be the way to go.
As you can see, the issue is not black and white. There is a lot of gray area that needs to be considered. At the Berkowitz & Myer, we can guide you through the bankruptcy process and help you determine what type of bankruptcy, if any at all, is best for you.