If bankruptcy is your only hope of getting out from under a mountain of debt that’s grown too large for you to pay, you have one more big question to ask yourself. Should you file for Chapter 7 or Chapter 13 bankruptcy? Most assume Chapter 7 is the appropriate choice for consumer bankruptcy, but some benefit more from filing for Chapter 13 bankruptcy.
What is Chapter 13 Bankruptcy?
According to Bankruptcy Code, Chapter 13 bankruptcy provides for the adjustment of debts for an individual with regular income. Chapter 13 (also called a wage earner’s plan) allows petitioners to keep their property and pay their debts over time (typically three to five years).
Who Should File Chapter 13 Bankruptcy:
Chapter 13 bankruptcy is designed for petitioners with a regular income to enable them to cope with overwhelming debts.
What Are the Advantages of Chapter 13 Bankruptcy?
- Stop Foreclosure
- Reschedule and Extend Other Secured Debts
- Protection for cosigners
- Consolidation of payments & distance from creditors
Filing Chapter 13 to Stop Foreclosure Proceedings:
Chapter 13 offers individuals some advantages over Chapter 7’s liquidation process. For many, the most significant advantage of chapter 13 is that it offers an opportunity to save your home from foreclosure. By filing Chapter 13 bankruptcy, homeowners can stop foreclosure proceedings and use the three to five-year repayment period to cure their delinquent mortgage payments. Filing Chapter 13 doesn’t give homeowners a pass on paying what’s due; they still have to make all their mortgage payments due during the chapter 13 plan on time.
Filing Chapter 13 to Reschedule & Extend Other Secured Debts
Another advantage of filing Chapter 13 bankruptcy is that it offers the opportunity to reschedule other secured debts (similar to the mortgage on a primary residence), extending them across the Chapter 13 repayment play (three to five years). Rescheduling secured debts in this manner can sometimes mean a lower payment.
Filing Chapter 13 to Protect Cosigners:
Chapter 13 also has a special provision that can protect cosigners on consumer debts.
Filing Chapter 13 to Consolidate Payments:
The Chapter 13 repayment plan requires that the petitioner make plan payments to the bankruptcy trustee, acting as a consolidation loan, as the trustee then distributes the payments to the creditors. During the Chapter 13 bankruptcy, petitioners also enjoy distance from their creditors, as the bankruptcy trustee distributes all payments. The petitioners have no direct contact with their creditors while under Chapter 13 bankruptcy protection.
Determining how bankruptcy law applies to your case can be complex, and we want to help. If you have questions about bankruptcy and how filing bankruptcy could help your family, please don’t hesitate to contact Ken Rannick. You are in good hands with Kenneth C. Rannick P.C.