Peter R. Scribner, Esq. ATTORNEY AT LAW
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When is Chapter 13 bankruptcy the right option?

When people think of bankruptcy, they often conjure up images of someone who is too old or sick to work. While it is true that Chapter 7 bankruptcy has specific protections for those who have lower levels of income and fewer overall assets, that doesn't mean that only people in dire financial straits or who don't have jobs need the protection of bankruptcy.

In fact, those who work high-profile and high-paying jobs can often find themselves overwhelmed by debt. After all, you probably need a car, wardrobe and home that is comparable to those of your peers. The more you make, the more debt you may find yourself carrying at any given time. Even those with substantial assets and income may require the protection of Chapter 13 bankruptcy proceedings.

There's no income cap for Chapter 13 filings

In order to file for Chapter 7 bankruptcy, individuals must first pass a means test that explores their income level and assets. Generally, those who have an income over the state average will not qualify for Chapter 7 protections.

Chapter 13 protections are available for those who don't meet Chapter 7 requirements. There is no maximum income to file for Chapter 13 bankruptcy, nor is there a maximum amount of assets, such as equity in your home, that you can possess. That is because instead of immediately forgiving debts, Chapter 13 proceedings require a repayment plan.

During a three-to-five year period of time, you will make monthly payments to the courts to be distributed to various creditors. At the end of that repayment period, you will be eligible to discharge your debt. If you find yourself underwater due to credit card debt, Chapter 13 bankruptcy could offer you a fresh financial start.

Chapter 13 proceedings don't endanger your assets

Unlike Chapter 7 proceedings, where the courts can seize and then liquidate certain assets to repay your creditors, Chapter 13 bankruptcy does not pose a threat to your accumulated wealth. That means that you can protect your retirement account, your home, family heirlooms and your car. 

When you have substantial assets, Chapter 13 is usually a better option than Chapter 7. The repayment plan that the court creates will reflect your current income, as well as your obligations to your creditors.

If you aren't sure whether bankruptcy would be the right choice for you, it may be time to sit down with an attorney to discuss your financial situation.

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