Control of Your Assets: A Major Chapter 13 Benefit

We’ve discussed the benefits of filing a Chapter 13 bankruptcy before, but there’s one huge benefit that we’ve never really talked about. The debtor stays in control of his or her assets during a chapter 13 bankruptcy filing. You might think that you have control over your property at all times, but that’s not true when filing Chapter 7.

Why is this important? Let’s say that you were injured in a car accident through no fault of your own. You are out of work and this loss of income has you way behind on your bills. You have a personal injury attorney working for you, but you are still receiving medical treatment for your injuries, and there is no compensation insight. You think about filing for bankruptcy. Because you have a pending personal injury claim, it is an asset that must be dealt with in the bankruptcy world. But, your decision to file for Chapter 7 or 13 is an even bigger decision.

If you file Chapter 7, an estate is created under the bankruptcy laws. Your estate contains all of your assets (with limited exceptions), and a court-appointed chapter 7 trustee assumes total control of your estate. It’s a bit bizarre to think that all of your stuff now belongs to the chapter 7 estate, but that is exactly what happens as soon as your bankruptcy case is filed. This doesn’t mean that you have no control when it comes to the assets in your estate. You are still in control of all the assets that can be exempted or excluded from your estate. The main task of a Chapter 7 Trustee is to sell or liquidate all of your unprotected assets in order to pay back either all or a portion of your debts.

When Chapter 13 is filed by a debtor, an estate is also created. In contrast, Chapter 13 allows the individual (you) to keep control over the assets (including the personal injury claim) in the estate. You control what is kept, surrendered, sold and what creditors can obtain. Your plan of reorganization tells every creditor, the Court, and the Chapter 13 Trustee exactly what you intend to do with your assets and the property of the estate. Creditors and the Court have to approve the reorganization plan laid out by you during a Chapter 13 filing. The creditors, the Court, and the Trustee will make sure that everyone is treated fairly.

So, even if a creditor doesn’t like the plan that you have devised, they will often have to go along with it as long as it meets all the requirements of the bankruptcy code. There are only certain grounds for objections in the case of a Chapter 13 filing.

This is a big difference - and one that could save your bacon. Sure, you may be saying that I wasn’t injured in a car accident, so I don’t have to worry about that, and you would be correct. But, there are many other instances where you risk losing an asset if the decision to file the right bankruptcy is not made.

If you’re not sure which type of bankruptcy filing to choose, please contact The Dellutri Law Group today for a personal consultation - often the best option isn’t the most obvious one!