Here is how I explain the decision between Chapters 7 and 13:
First, we split all of your debt between 2 buckets. I know it sounds silly, but stick with me, it makes sense.
Bucket 1 is the debt that you are going to keep paying. Most taxes, child support arrears and secured debts such as mortgages and car loans for property that you want to keep will go into bucket 1.
Bucket 2 is all of the stuff we don’t want to and don’t have to pay. Credit cards, medical bills, payday loans and all other non-priority unsecured debts. Bucket 2 also contains the secured debt for vehicles that are being surrendered as part of the bankruptcy.
We now have two buckets to deal with. Bucket 1 is stuff that you will continue paying, Bucket 2 is everything else.
Chapter 7 dumps out bucket 2 and lets you deal with bucket 1 on your own. If you are current on your house and car and don’t need help paying off taxes, etc., this is probably the choice for you. It is faster, easier and cheaper but doesn’t help with any of our bucket 1 debt.
If you are behind on the house or car and need help getting caught up, Chapter 13 is likely the chapter for you. Chapter 13 allows us to set up a payment plan to pay off the debts or arrearages in bucket 1 and only as much as you can afford to pay of the debts in bucket 2. Any bucket 2 debts that you can’t afford to pay over the life of the Chapter 13 payment plan gets dumped out just like it would have in a Chapter 7. Chapter 13 does not require that you pay 100% of all debts. Remember, however, that you have to show the judge that you can afford to pay for everything you have placed in bucket 1. If you can’t afford the car, for example, the Court is going to require that it go into bucket 2 to be surrendered.
There are a few other fact specific issues that may push us one way or the other such as income restrictions and debt limits. Our attorneys will help you figure it all out at a free consultation appointment.