4 times when you should strongly consider Chapter 13 bankruptcy
If you have fallen behind on your debts, you may have already heard about how Chapter 7 bankruptcy may be able to help you. However, you are likely less familiar with it’s lesser-filed counterpart, Chapter 13. Although it may be true that Chapter 7 is a better fit for you, if certain things are true, you might want to consider filing Chapter 13 instead.
You are facing foreclosure or are behind on secured debt
Chapter 13 can help you catch up on your mortgage and other secured debts by allowing you to roll your missed payments into the repayment plan. The plan allows you to catch up on your missed payments using monthly installments over 3-5 years. As long as you make the required payments each month, you can stay in your home or keep the collateral securing the debt.
Although Chapter 7 may help by eliminating your obligation to repay your mortgage or secured debt, it does not prevent your creditors from foreclosing or repossessing the collateral, unless you can keep your mortgage and secured debts current throughout the bankruptcy.
You owe debts that cannot be discharged
If you owe back taxes, child support, alimony or other debts that cannot be eliminated in bankruptcy, it is generally better to file Chapter 13. Although it cannot eliminate these debts, it can help by allowing you 3-5 years to catch up with them under the payment plan. Additionally, while you are making payments, Chapter 13 prevents your creditors from garnishing your wages or taking other actions to collect these debts.
You own nonexempt property
If you would like to keep property that is not exempt from the liquidation sale in Chapter 7, such as second homes, multiple vehicles or luxury items, Chapter 13 is likely a better fit. During Chapter 13, you can keep all of your property while you pay off or catch up on your debts. However, in Chapter 7, you would lose all your nonexempt property in the liquidation sale.
You have cosigners
If you have a cosigner on a loan or other debt, Chapter 13 is also beneficial. If you file Chapter 7, it will wipe out your liability for the debt, but leave creditors the option of going after the person who cosigned for the entire debt amount. However, filing Chapter 13 instead will protect your cosigner from harassment for your debt during the entire bankruptcy process. By the end of Chapter 13, you will have paid off your debt or become current on it.
An attorney can help you choose
The choice of the type of bankruptcy to file is a serious matter and should not be undertaken blindly. An experienced bankruptcy attorney can provide an analysis of your situation and recommendations on the best way to proceed.