Deciding to file for bankruptcy protection can be a difficult decision. Although a Chapter 7 bankruptcy offers a debtor a faster discharge, filing a Chapter 13 case may be in a debtor’s best interest.

Probably the most common reason to file a Chapter 13 bankruptcy is because the debtor does not qualify for a Chapter 7 bankruptcy under the infamous means test. Many with non-exempt assets also choose chapter 13 because it allows them to keep property that would otherwise be liquidated in a chapter 7 case. However, like a Chapter 7 filing, the availability of Chapter 13 has been restricted by Congress. In order to qualify for Chapter 13 bankruptcy, the debtor cannot have too much debt. A debtor with regular income must have less than $336,900.00 of noncontingent, liquidated, and unsecured debt and less than $1,101,650.00 of noncontingent, liquidated, and secured debt. If you aren’t sure what type of debt you have, contact an attorney.

The chapter 13 numbers will be adjusted on April 1, 2010, to reflect changes in the Consumer Price Index. In order to qualify, a debtor must not have received a discharge under Chapter 7, 11, or 12 during the preceding four years or filed a Chapter 13 during the preceding two years. Even if a debtor qualifies for a Chapter 7 bankruptcy, it may in the debtor’s best interest to file under Chapter 13.

Another common reason for seeking a Chapter 13 bankruptcy is to stop foreclosures and repossession. Unlike in a Chapter 7, a Chapter 13 reorganization plan gives a debtor an opportunity to catch up on outstanding payments. In certain circumstances the debtor may even be able to reclaim property which has been repossessed. A Chapter 13 filing may also be beneficial to a debtor with substantial priority debt such as back taxes and domestic support obligations which are not dischargeable. Under a Chapter 13 reorganization plan the debtor will be allowed to make payments on the priority debt while reducing payments on other unsecured debts. This can be particularly beneficial if the debtor resides in a state which imposes sanctions on debtors who are behind in taxes or domestic support obligations. Filing for bankruptcy protection may not be the most desirable option, however, it may offer the best protection from both priority and nonpriority creditors.

- Richard V. Stokan, Jr.