Chapter 7 bankruptcy offers a way to get rid of debts almost instantly. Chapter 13 bankruptcy, on the other hand, can take years and require repaying some or all of the debt a person owes, so why do people choose Chapter 13? There are times when Chapter 7 is the best solution, but there are other times when Chapter 13 works better. Here are three occasions when Chapter 13 is the best option for a person to choose.

They Do Not Qualify For Chapter 7

To file for Chapter 7, a person must pass the means test. This test is based on the person's income, and it is the first test a bankruptcy attorney will use. If the person passes the test, it means that he or she has income below the state median level. In this case, this person would qualify for Chapter 7. If the person's income is above the median level in the state, the person would be have the option of filing Chapter 7.

This is one of the main reasons people do not choose Chapter 7. It is not always because they do not want to use this branch; it is that they cannot, because they do not qualify.

To Stop A Foreclosure

When people file Chapter 7, there is a chance they may be able to save the house they are living in, even if the lender has started the foreclosure process. In Chapter 7, the lender will have to agree to let the person keep the house, and lenders often require repayment of all arrears before they will approve it. This means that a person might lose his or her home if using Chapter 7.

Chapter 13 bankruptcy is often referred to as the branch used for repayment of debt. When a person files for Chapter 13, the person is placed on a repayment plan. This plan allows the person to repay all current and past-due debts, and it will allow the person to keep his or her home.

If a person is facing foreclosure on his or her house and really does not want to lose it, filing Chapter 13 would put an instant stop to the foreclosure. As soon as the person files, an automatic stay kicks in. An automatic stay will stop the foreclosure proceedings and will require the lender to accept new terms for the loan. This might be the only way the person could prevent losing his or her house.

To Keep More Assets

Another key difference with Chapter 7 and Chapter 13 is the way assets are handled. When filing Chapter 7, a person will receive forgiveness for all qualifying debts. In return for this, the person may have to give up some assets. This can include physical property, cash, future tax returns, inheritances, and other types of income.

This can be a big risk for a person that owns a lot of things, which is why some people prefer filing Chapter 13 instead. Because a person must repay debts in Chapter 13, the person will be able to keep more assets. This person will not have to worry about the trustee seizing tax returns or other types of monetary windfalls, and the person will not have to turn in any assets.

Both branches of bankruptcy are good, and both have pros and cons. If you are considering filing Chapter 7, you might realize that Chapter 13 would be better for you, or it might be the only choice you have. You can make an appointment with a bankruptcy lawyer, like John G Rhyne Attorney At Law, to learn more about both branches of bankruptcy.