When would Chapter 13 be appropriate for me?
For people in certain situations, Chapter 13 is a better fit than Chapter 7.
If you are struggling to pay off debt, you may have heard about the wonderful things that Chapter 7 bankruptcy can do for you. You may have been told that it can relieve most of your debt in as little as three months without the need for a payment plan. As a result, you may wonder when the other type of bankruptcy for individuals, Chapter 13, would be appropriate. The simple answer to this question is that Chapter 13 bankruptcy is a better fit, if certain situations apply to you. It is therefore important for you to understand when Chapter 13 offers significant advantages over Chapter 7, so you can make an informed decision.
Help with foreclosures
If you are facing the threat of foreclosure, Chapter 13 offers significant advantages over Chapter 7. Upon filing Chapter 13, the automatic stay puts a stop to all foreclosure proceedings. During the Chapter 13 process, your back mortgage payments are consolidated into the payment plan and paid back in monthly installments over three to five years. As long as you make your installment payment each month, your lender may not reinstitute foreclosure proceedings. Once you have completed Chapter 13, you are current on your mortgage.
Although the automatic stay also stops foreclosure proceedings in Chapter 7, it does not last throughout the bankruptcy. If you are unable to bring your mortgage current, your lender may petition the court to lift the stay and restart the foreclosure process.
If you own significant nonexempt property (e.g. multiple homes, cars and luxury items) that you would like to keep, filing Chapter 13 is generally better. In Chapter 7, such items would be sold off during the liquidation sale to pay your debts. Conversely, Chapter 13 allows you to keep all of your property, exempt or not, as you repay certain debts through the payment plan.
In addition to nonexempt property, Chapter 13 is a boon for those with significant amounts of debt that cannot be discharged in bankruptcy, such as taxes, alimony or child support. Many of these debts become part of the payment plan, allowing you to repay them over three to five years, instead of one lump sum, which can make it more affordable. If you owe taxes, the IRS cannot garnish your wages as long as you continue making payments. Chapter 7 does not offer this benefit.
Underwater second mortgages
If you have a second mortgage and owe more on your home than it is worth, Chapter 13 can assist you. Through the lien stripping process, Chapter 13 can discharge your obligation to repay your second mortgage, freeing up vital income for your first mortgage and other obligations.
Speak to attorney
To learn more about whether Chapter 13 would be a better fit for you, consult with an attorney. The experienced bankruptcy attorneys at Meredith Law Firm, LLC can examine your personal situation and recommend the debt relief option that can help you get back on track financially.