Last week, I wrote Part One of this article, where I explained some of the reasons that I find myself recommending Chapter 13 more often than Chapter 7 these days. Here are some more:
Florida bankruptcy exemptions are woefully inadequate
Although bankruptcy is governed by federal law, bankruptcy exemptions vary from state to state. Exemptions allow debtors to protect certain types of property from their bankruptcy creditors. Unfortunately, if a Chapter 7 debtor in Florida is retaining a homestead, he doesn’t get to keep much else: specifically, $1,000 of personal property and $1,000 of equity in a vehicle. That’s pretty much it (outside of certain special exemptions like social security, workman’s comp, and retirement accounts). So if you paid off that car loan last year, you may well lose the vehicle in a Chapter 7. Need a car to get to work? “Not my problem,” says the bankruptcy trustee (I’ve heard those exact words spoken to debtors in court). Another troubling issue is that Florida’s exemption laws fail to provide for “tools of the trade” like many other states do. The result of this omission? A piano teacher may have to give up her piano – her sole source of income – in a Chapter 7. Likewise, a mechanic may have to surrender his valuable tools to the Chapter 7 trustee. It gets worse. Florida doesn’t provide an exemption for a prepaid burial plot in a cemetery. If the plot can be sold, the Chapter 7 trustee will liquidate the asset. These are some of the cold, hard truths of Chapter 7 bankruptcy in Florida. Chapter 13, on the other hand, affords debtors an opportunity to retain ownership and control of the assets they would otherwise have lost in a Chapter 7.
“Super” Discharge only available in Chapter 13
There is another key benefit to filing Chapter 13 over Chapter 7: the “super discharge”, as it is commonly known. Many of the debts that cannot be discharged in a Chapter 7 are fully dischargeable in Chapter 13 by virtue of the super discharge. Some of these debts include: willful or malicious damage to property (but not willful and malicious damage to persons); debts incurred to pay non-dischargeable taxes (like credit cards which were used to pay an IRS tax bill); and certain debts arising out of divorce or separation property settlement (not including alimony or child support). Depending on the types of debt you have, the super discharge of Chapter 13 can be a valuable tool for bankruptcy debtors.
Reinstating a defaulted mortgage
A Chapter 13 payment plan can allow a debtor in foreclosure to cure their defaulted mortgage by paying the arrearage over the five year plan. This enables the homeowner to save the property from foreclosure, reinstate their mortgage, and keep their home.
There are still more convincing reasons to choose Chapter 13 over Chapter 7. In Part Three of this series, I will explore some lessor known, but equally compelling arguments for filing a 13.