Considering bankruptcy? Know when Chapter 13 is a better match for you
If you are deeply in debt, you may have heard about the benefits of Chapter 7. However, you may be less familiar with its counterpoint, Chapter 13. Although Chapter 7 is a solid choice for many, for those in certain situations, Chapter 13 is a better one.
You are behind on your mortgage or other secured debt
If you file Chapter 7, your personal liability to repay secured debts, such as mortgages and car loans, is extinguished. However, Chapter 7 does not eliminate the right of the secured creditor to take back the collateral securing the debt (i.e. the house or car), unless you can bring your debt current.
Chapter 13 can help those in this situation by allowing you to roll your missed payments into the repayment plan. Under the plan, you have 3-5 years to catch up on the missed payments, rather than having to do this all at once. As long as you make your required payments under the plan, you are able to keep the collateral going forward.
You want to keep nonexempt property
Chapter 13 also has the benefit of allowing filers to keep all of their property. Consequently, it is especially beneficial for those that own nonexempt property they would like to keep (e.g. vacation homes, luxury items, multiple vehicles etc.). If you had filed Chapter 7, these properties may have been at risk. Not all property is nonexempt, however. An attorney can accurately determine which of your property, if any, would be at risk and explain how Chapter 13 works as a good alternative.
You have cosigners
If someone else has cosigned a loan for you (i.e. car loan or lease), Chapter 7 bankruptcy will wipe out your liability for the loan, but will leave your cosigner on the hook for the remaining debt. In other words, your creditor may go after your cosigner for the full amount of the debt, even if your responsibility to pay was discharged. During Chapter 13, however, your cosigner is protected from being harassed by your creditors throughout the process.
You have non-dischargeable debts
If you owe significant debts that cannot be discharged in bankruptcy, such as alimony, back taxes or child support, Chapter 13 can help you. Although it cannot eliminate your obligation to repay these debts, Chapter 13 allows you to pay them off over 3-5 years, instead of all at once. Additionally, Chapter 13 protects you from the threat of lawsuits, garnishments and other collection attempts concerning these debts while you are making payments towards them under the plan.
An attorney can assist in the decision
Although you may be convinced that Chapter 13 is the type of bankruptcy for you, you should not rush to file it without the advice of an experienced bankruptcy attorney. An attorney can consider your unique situation and recommend the best way of eliminating your debt problem.