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What are the benefits of filing for Chapter 13?

There are numerous differences between a Chapter 7 bankruptcy and a Chapter 13 bankruptcy -- but the number one difference that most people focus in on is that Chapter 7 generally offers a total relief from your debts while Chapter 13 requires people to repay all or part of their debts.

Chapter 13 also has a few other aspects that people generally consider a drawback. It's more complicated to do than a Chapter 7, costs more by the time you are done paying all the legal fees and can take three to five years before you finally get discharged. Knowing that, why would anyone ever choose to file for a Chapter 13 bankruptcy? It seems like it would be much easier to simply file for Chapter 7 and be done in four or five months.

There are several main reasons that you might prefer a Chapter 13 over a Chapter 7:

—You may want to save your home from foreclosure. If you are significantly behind on your house payments and the home has gone into foreclosure, a Chapter 13 can help you permanently stop the process and allow you to catch up on the payments.

—You may have had a previous Chapter 7 bankruptcy that was too recent to allow you to file for Chapter 7 again.

—You have some luxury possessions that you don't want to lose, which would have to be liquidated under Chapter 7

—Your disposable income is high enough that the court believes it would to allow you to repay some of your debts if you go through restructuring

—There are certain creditors you don't wish to default on, like relatives or close friends who loaned you money

—Filing Chapter 7 would put someone who cosigned a loan for you on the hook for the payments and you want to avoid doing that

Filing for bankruptcy can be a complicated decision that requires careful balancing of both your financial and emotional needs. In order to determine which type of bankruptcy is right for you, talk the decision over with an attorney.

Source: FindLaw, "Benefits of Chapter 13," accessed Jan. 10, 2017

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