For many people, one of the hardest parts about declaring bankruptcy is deciding between Chapter 7 and Chapter 13. Even when you understand the difference between the two, it can be challenging to figure out which one works best for your unique situation. Read on to see four real-life examples and which option would be best for them. Then call The Law Offices of Paul Y. Lee to get personalized advice on your unique situation.
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A homeowner who’s unemployed and owes more on their home than it’s worth
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A homeowner who’s employed and whose home is delinquent or in foreclosure
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An unemployed person who doesn’t have very many assets
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A homeowner who’s unemployed and has a lot of equity in their home
Homeowners have several options. If they have an upside-down mortgage, which is when they owe more on their mortgage than their home is worth, Chapter 7 is typically the right choice. Why? The value of their home is less than the value of the lien the mortgage company has against it. As a result, the homeowner has $0.00 equity in the estate so the home would be protected from liquidation. Chapter 7 is also a good option because it quickly prevents them from having to repay their credit cards and other unsecured debts, which makes it easier to keep up on the monthly bills.
If you’re a homeowner and you’ve already fallen significantly behind your mortgage payment, then Chapter 13 may be the right choice. It allows you to catch up on your past mortgage payments, or even “cures” those past due payments, and also allows you to get rid of some of the dischargeable debt. Together this means that you may be able to save your home from being foreclosed on and get rid of significant credit card debt, second mortgages (and third mortgages), and medical debt. Chapter 7 doesn’t allow for homeowners to make up for these mortgage payments in the same way.
The most common reason people file for bankruptcy is because they’ve lost their income and they have a lot of debt. In this scenario, we’re considering a person who doesn’t own their own home and has a single car, which has a loan. In this case, Chapter 7 is going to be the easiest, fastest, and most effective option.
Finally, let’s consider a person who owns a home and has a lot of equity in it, but they’re currently unemployed. In some cases, they may be able to keep the home in a Chapter 7 bankruptcy, but they can definitely keep it in a Chapter 13 bankruptcy, assuming they can keep up on the mortgage form here on out. For this scenario, the best option is to call The Law Offices of Paul Y. Lee at 951-755-1000 to get advice on their specific situation – which is also the best way for you to proceed!
