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Should I file a Chapter 7 or Chapter 13 Bankruptcy?

8/20/2015

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Erase Debt in Utah BankruptcyErase Debt
When filing bankruptcy the first thing you have to determine is whether you want to file a chapter 7 bankruptcy or a chapter 13 bankruptcy. There are several factors that go into this decision. Such as, do you have equity in your home? Are you behind on your house payment? Do you have a lot of assets? How much money do you make?

Utah Chapter 7 Bankruptcy

A chapter 7 bankruptcy involves a liquidation of assets.  There are certain protected assets that the legislature has deemed "necessary", these protected assets are called exemptions.  Generally household items such as furniture, beds, refrigerators, etc. are considered exempt. You can typically keep your vehicle as well as long as there isn't too much equity.  Non-exempt items would be surplus vehicles, boats, off-road vehicles firearms, etc.

Debtors that have a lot of non-protected property often want to avoid a chapter 7 bankruptcy because that property would likely be liquidated. Your house can even be liquidated in a chapter 7 bankruptcy if there is too much equity. More information on this can be found in the exemptions section of www.pearsonlawfirm.org.

The most important factor in determining whether you will even be allowed to file a chapter 7 bankruptcy is income. If you make more money than the IRS median income for a family your size then you may not qualify for a chapter 7 bankruptcy, and the decision will be made for you. Information on median income can be found in our Chapter 7 Bankruptcy section.

Utah Chapter 13 Bankruptcy

In my experience, the main reason people file for a chapter 13 bankruptcy is because their home is at risk of foreclosure, or they're behind on their mortgage and cannot catch up. A chapter 13 bankruptcy allows you to stay in your home because instead of liquidating assets, a chapter 13 bankruptcy sets up a payment plan, where unsecured creditors typically get a portion of the debt owed them, and secured creditors are generally paid in full. Through this model you can set up a payment plan wherein you pay back the arrears on your home over the life of the bankruptcy plan (generally 3 to 5 years).  You also have to resume or continue making your normal monthly mortgage payment. So by the end of your bankruptcy you've caught up on arrears and you're current on your ongoing payment.

There are other things to consider when determining which chapter to file as well. Contact an experienced bankruptcy attorney in order to see what chapter is best for you and your situation.
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    Jared B. Pearson is an experienced attorney that has been litigating in Utah for over 9 years. Jared specializes in family law, bankruptcy, and criminal defense.

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