Should I file Chpt 13 or Chpt 7?

I've got about 15K in cc debt, 17K in a vehicle loan (7K upside down on) and I can't afford to make payments on any of this anymore. Actually, my credit is ruined as every cc I have is charged off and I haven't paid on anything in almost a year. I know I should've taken action on this a long time ago but I didn't come to grips with filing for BK until recently. I just ignored the problem hoping it would go away.

I spoke w/ an attorney regarding this and he advised a Chapt. 13, solely for the fact that I'd be able to keep the vehicle and be able to wipe the deficiency (7K) out along with all my unsecured debt, while lowering the monthly payments by 200+ dollars and I'd own the vehicle in 3 yrs (vs. the 5yrs at 21% I have left on it).

I'm leaning towards a chapter 7 because I'd like to get this over with asap and start over fresh w/ zero debt. In a 13, I'd have to make payments for 3 yrs but I'd achieve the same thing as I would in a 7, plus I'd get to keep a fairly new car and owe only what it's worth.

I'm definitely going to file BK, the question is which one. I qualify for both.

Can anybody whose gone through this offer any advice??

"I've got about 15K in cc debt, 17K in a vehicle loan (7K upside down on) and I can't afford to make payments on any of this anymore. Actually, my credit is ruined as every cc I have is charged off and I haven't paid on anything in almost a year."

If you can't make the payments on the car now, why can you make the payments after you filed for bk 13?

Because I'm paying 21% interest on the auto loan, by filing chpt. 13 it brings it down to 10% and cuts the payment in over half the amount I was paying before.

I didnt know there was a choice.I`m pretty sure if the court sees you have the ability to repay,they won`t allow a BK7.At least thats what my attorney says.I`d rather file bk7,but I`m told I have the ability to repay approx .40 on the dollar. So,I`ll be paying $250 a week for 3 years.I can`t wait,it ought to be an adventure in itself........

In this county you can file a chapter 13 BK and pay 0% of your unsecured debt and only pay the actual value of any secured debt (car for example), you pay an interest rate that's set by the county and in this one it's 10%. I owe WAY more than the vehicle's worth and I still need reliable transportation so I chose this option. I wipe out all unsecured debt and "cram down" my current auto loan. You should look into it if you're in a similar situation.

I highly recommend 2 attorney opinions, especially for a 13. I know of cases with lawyers pushing for Ch. 13 because their fees were MUCH higher than for a Ch. 7.

That doesn't mean that 13 is always bad, but I've seen people get really screwed - do your homework.

Also, there are many ways to establish a budget and often people forget to list expenses.

Reducing the balance on the car loan is great idea. Has anyone tried that even though they discharged and just wanted to keep the car?

Christine, in what way can I get screwed by filing a chpt. 13? I told my attorney I was leaning towards a 7 but his advice was that a 13 would be the best and that I could convert it to a 7 at any time during the plan.

I also asked him if his advice was based on the fact that he'd get about 1,000$ more for the 13 and he said that, while yes, he'd get more money, he'd also have 3yrs of liability and that he'd only be receiving payments out of the trust in small amounts every month. He seemed to be pretty intelligent and had legitimate concern for doing it right.

I'd personally like to file a 7 and get the discharge and start all over from scratch but I've got a long commute to work every day and I need reliable transportation. I also don't have the cash to go out and buy a vehicle if I were to do the 7 and give the car back. What do you think? Seems like comparitively speaking a 13 is better than a 7, it stays on your credit for less time and on my credit report it'll look like I made arrangements to pay my debt through a 13 reorg. when in fact I"m wiping all unsecured debt out. I've got my creditor's meeting this week so any advice you have would be appreciated.

Also, the budget is kind of set by the court. You're only allowed expenses for basic living expenses and there's a max. amount in each category. I wasn't able to list my student loan payments as an allowable expense since it's unsecured but it's also non-dischargeable. Does this sound right to you?

" I wasn't able to list my student loan payments as an allowable expense since it's unsecured but it's also non-dischargeable. Does this sound right to you?"

That makes absolutely NO sense to me. How ARE you supposed to pay the student loans?

"it stays on your credit for less time"

Equifax 10 years.

"Also, the budget is kind of set by the court. You're only allowed expenses for basic living expenses and there's a max. amount in each category."

I guess if you don't qualify you don't qualify. I really can't tell you which way to go - the 13 might well be the right thing for you. I've just seen some people pushed in a 13 and after spending several hours looking over their finances I noticed that they got totally screwed, there was NO purpose for a 13 and we had it changed to a 7.

I have a forebearance on the student loans and can get forebearances until I"m done with the plan, but the thing is I only told the lawyer that I had the student loans on forebearance and never mentioned that I could continue to get them (they're for 12 months at a time). I need to talk to him tomorrow and ask him what the deal is with that.

The ONLY reason I'm doing the 13 is because I need a reliable vehicle and I don't have cash to even go out and buy a low priced vehicle (2-3K). I feel NO obligation to pay any more money to the bloodsucking creditors after what I've been through with them. They got enough money to cover anything they ever lent me.

Question on the student loans: will they continue to accrue interest while in deferment?

To answer Christines question regarding if student loans still accrue interest during a deferment. The answer is yes they do.

To address another point. When i filed a chapter 13, my first payment in the plan went towards the attorney fees. This fee was over $1,800.00. Before I filed a 13, I had two credit cards with balances of about $5,000 each go to collections (or in my case law offices). Because I worked in a bank, I could have easily lost my job with two garnishments coming in so I agreed to start paying them, yet once I started they would not leave me alone. By the end of the first month I was paying them about $800 monthly. When I told them I couldn't afford that much they said that they would start the garnishment that day. I was scared that I was going to lose my job so I was paying them I guess to keep them quiet. Of course this left me with little money to pay my other bills.

When I fell behind two months on my mortgage, my only option per the BK attorney was a chapter 13. However, in hindsight I now know that I could have started the procedure for a chapter 7 ( not actually file yet, but sign the contract and give the lawyer a down payment and you can give creditors the lawyers phone number) and got my mortgage caught up. However, I was pretty naive and didn't know any better at the time. I was too embarrased to talk to people I knew and I TRUSTED this lawyer. Afterwards, I knew that his only motive was his fees. After paying this first payment, none of this money went towards my bills ( only the lawyers fee) and I was now another month delinquent on my mortgage.

In fact, I recall the lawyer taking a call from another client while I was sitting at his desk and he told the client "WHEN I SOLD YOU THE BANKRUPTCY"....

SOLD? To him it was a sale, just like if he was selling me a used car.

Add to this some unexpected expensive car repairs and some other unexpected demands on your money, it doesn't take very long for you to fall behind on the trustee payments.

When I fell behind on the 13 payments ( I think it was 2 payments) the trustee dismissed my case. The same day my car was repossessed because the case was dismissed. I called the attorney who suggested that I refile the 13 and he could get my car back. I never saw that car again. The lawyer however, did get another fee of about 1,800.00! In addition, I was told that because of the dismissal, I had to pay unsecured creditors a higher percentage, so now my payment was even more than before.

To make a long story short, I ended up losing the house in foreclosure. Started paying everyone back and three years later my credit was no better than it was when I left the 13.

Two years ago, i filed a 7 and finally got rid of everything. At least now I have a chance of starting over.

You are right Christine, people do get screwed in a 13!

Sam, thank you so much for sharing your story - and I'm so sorry!

Unfortunately, that's what happens so often.

"When I fell behind two months on my mortgage, my only option per the BK attorney was a chapter 13."

That's exactly what I've seen over and over. It doesn't mean that a 13 isn't right in SOME cases, but too many times people do get screwed.

Thanks for your support Christine.

This site has helped me tremendously. It gave me the courage to finally face my credit past and deal with it!

Even though I only started cleaning up my credit in February of this year, I am already seeing improvement.

If my story can help prevent someone else from the hell that I went through, then I don't mind sharing it.

At least here, we are not being judged and obviously our goal is to find ways to improve our situation and maybe someday..., screw these CRA's who have turned us into a number and those creditors who won't see past that number.

One other thing..

I remember seeing a thread that you shouldn't apply for the TARGET store card online because you have a higher chance for denial. I applied online and got the store card (didn't see the post until after I applied) but I thought I would share this info.

Another situation to consider regarding a chapter 13.

When I filed, I had purchased "household goods" such as a microwave from Sears, a TV, VCR etc. Keep in mind that these purchases were probably 2 to 3 years before I filed, however, Sears and First USA came to my meeting of creditors and my debt for them was changed into two catagories, secured and unsecured.

On the secured debt you have to pay 100%. (at least I did) but this increased my trustee payment and the only place that can come from is your budget that the court has established for you. Believe me, this budget does not allow for anything EVER to go wrong in your life financially.

Just remember that the payment that you get from the lawyer before you file is not written in stone.

Listen to Christine and do your homework regarding Chapter 13's. I'm sure that there are lawyers who do care about their clients and head them down the right path for their situation. Yet I know there are alot of them out there that could care less if you end up homeless if they can get a bigger paycheck.

Sorry to hear about your problems Sam, at least you've learned from your mistakes though.

I had my Chpt. 13 creditor's meeting today and it went fairly smoothly. I submitted a plan for 0% to unsecured creditors and a crammed-down auto loan. I was there with about 8 other people filing a 13 and for most it took only a few minutes. NO creditor's showed up for anybody. Not sure why but nobody there seemed too surprised.

When I got up the trustee asked me a few general questions and then decided that I should be submitting a portion of my yearly tax refunds to unsecured creditor's. I started sweating bullets until he said that he felt that 4% was his calculated amount of what they're entitled to. After having to go with my attorney to a conference room to fill out a modified plan form, we resubmitted and I was out of there in less than an hour. 4% doesn't add up to much, I don't see the point but the trustee has an obligation to get what he can. I'm just glad to have it behind me.

I was kindof surprised that the trustee actually tells you that he won't dismiss the case unless your 2+ months behind on your payment, seemed pretty lenient to me. My payment is definitely affordable and if I ever lose my job or the vehicle breaks down w/ major repairs I can convert it to a Chpt. 7. 2 months is a long time to be behind on a payment that's only 275$/month. Since I don't have a house my case is much simpler than Sams obviously.

There were also other people there that had had their 13 dismissed before and were resubmitting it and they got it approved. The trustee just grilled them a little about it and said "good luck".

Maybe the county I live in is more lenient than other places and I'm very lucky then if that's the case.

Thanks for this site Christine, I've been trolling here now for over a year and have found this a great resource and a place I can come to and not have to worry about being judged about my filing for BK.

Sounds like it worked out ok! It is good to know that you can get the principal on a car loan reduced.

Sam mentioned the Target application, and apparently his credit was good enough to get the online approval. I've had clients who got declined online and then had to go to the store, and of course they got hit with a 2nd inquiry.

Neptune, what did you do for a vehicle after you filed for chpt. 7 until you were able to buy a new one? I like the plan I'm on for my chpt. 13 but am thinking it may be best to convert it to a 7 in order to start rebuilding credit from scratch. My problem is that I need a reliable vehicle to get to and from work and I live 25 miles from my workplace and it would take me over 2hrs each way on the bus. The ONLY reason I went w/ the 13 is because I need a reliable vehicle right now and don't have the cash to buy even a low-priced used car.

Thanks!