Some individuals pass the means test for Chapter 7 bankruptcy. Yet they also have income that might allow them to repay their creditors under more favorable terms. This option might be preferable to individuals who wish to pay at least a portion of their debts or desire to stay in their homes or retain more property. Additionally, people with businesses who want to continue operations need to repay debt to accomplish this goal.
The key is to submit a plan acceptable to the bankruptcy court based on a real chance of success. Under Chapter 13 bankruptcy, the courts base their decisions largely on the classification of outstanding debt, as follows:
Priority claims have special status under the law and include such items as taxes and domestic support obligations. These claims must be paid in full.
Secured claims involve collateralized items, such as homes and vehicles as well as other types of secured loans. Filers can choose to give up the collateral for any item. However, to retain the collateral, they must have a plan that fully repays the debt.
Unsecured claims include credit that has no collateral, such as credit card debt. Filers do not have to pay these claims in full under Chapter 13 bankruptcy. However, you must commit to use disposable income to repay some debt over a specified period of time, at least to the extent that repayment would occur under Chapter 7 liquidation.
Not all individuals or businesses that qualify for Chapter 7 have the financial means to develop a plan that the courts will approve. However, many people can — and do — successfully file for Chapter 13. The key requirement is to carefully analyze your current financial situation and strike the right balance that meets all repayment requirements.