Those in Baton Rouge who are considering personal bankruptcy might be immediately tempted to file under Chapter 7. This is no doubt due to the benefit that a Chapter 7 bankruptcy offers of allowing certain debts to be discharged. Indeed, according to data compiled by the American Bankruptcy Institute, over 63 percent of the non-business bankruptcy filings from the second quarter of 2018 were Chapter 7 cases.
Yet a Chapter 7 may not be the best option for all debtors. Those hoping to protect their homes (which most would likely agree would be a person’s most valuable personal asset) might instead want to consider filing under Chapter 13. The Administrative Offices of the U.S. Courts shows that with a Chapter 13, one is able to consolidate their debts into a repayment plan that they can repay across a period of three to five years. How does this benefit one trying to keep their home in a bankruptcy case? If a person has missed mortgage payments, they can include those payments in their debt repayment plan. Thus, those arrears will be settled over time, and the added money freed up by not paying on debts individually can help on stay current on their mortgage payments going forward.
In a Chapter 7, one does not have a way to settle mortgage arrears. Thus, the bankruptcy trustee may sell one’s home and use its proceeds to repay creditors (including their mortgage lender). Plus, by selling the home in a bankruptcy case, one could potentially lose all of the equity they have their home (provided that the bankruptcy exemption amount is less than the totally amount of equity they have in the home).