Three times when you should consider filing Chapter 13

If you fall into three primary situations, Chapter 13 may be better for you.

If you are struggling with debt and are considering bankruptcy, there are two main types that are available to most individual filers-Chapter 7 and Chapter 13. As most individuals seeking relief believe that Chapter 7 is a better option, you may already be familiar with the basics of what it offers. However, since repayment plans are sometimes discussed less often, you may not know that the filing of a Chapter 13 may offer many advantages. There are many reasons to consider a Chapter 13, and a few reasons are set out below so that if you find yourself in one or more of these positions, then a Chapter 13 bankruptcy may be a solution worth considering.

Foreclosure is on the horizon

If you have regular income and are struggling to pay your mortgage debt, filing Chapter 13 bankruptcy is an especially useful solution. Once you file, the automatic stay stops all collection attempts and pauses the foreclosure process. With the stay in effect, your mortgage arrearages can become part of the payment plan or you may have time to implement a loan modification. In a chapter 13 proceeding, you make monthly payments over three to five years depending on a number of factors. Since the amount you must pay each month is based on your disposable income, many filers find it is affordable and offers significant help in catching up on their mortgages while getting relief from other pressing debt obligations. If there is a chapter 13 filed, your lender may not restart the foreclosure process without getting court permission and if you have been making the payments, they will typically not have a reason to seek that type of relief.

If the goal is for you to keep your home and to solve the problem of past due mortgage payments, then a Chapter 13 can provide you with a process and the time to do so and you are able to remain in your home. Typically by the time that you have made your last payment under the plan, you will have become current on your past due mortgage payments while also becoming relieved of most of your other debts which you owed on the date that you filed for Chapter 13 protection. This means that after the Chapter 13 is over, you are up to date on your mortgage so that you are then able to continue making your mortgage payments like you normally would, free of the fear of foreclosure.

Although filing of a Chapter 7 also offers the protection of the automatic stay, a lender is able to ask the court to lift the stay if you do not become current on your mortgage within a short time. As a result, Chapter 7 is typically useful for those individuals that do not need extra time to bring their mortgage current and are instead struggling because they are weighed down by other unsecured debts.

You owe debts that are nondischargeable

If you have significant debts that cannot be discharged in bankruptcy, such as alimony, student loans, most taxes and child support obligations, filing Chapter 13 can also be helpful. Although it will not relieve you of your obligation to repay these debts, Chapter 13 can make managing them easier. Because the nondischargeable debts become part of the payment plan, you will have three to five years to pay the amounts which have past due or in some instances, to pay them off in full. In the meantime, you are protected against the creditors filing lawsuits, seeking wage garnishments and other collection actions, as long as the automatic stay is in effect and you are making the agreed plan payment each month.

You have nonexempt property

In the Chapter 7 liquidation process, your nonexempt property can be sold by the Chapter 7 Trustee to pay your debts. As a result, it may not be the best choice for people that would like to hold on to their nonexempt property (e.g. depending on their value it could include property such as luxury items, investment properties, timeshares, and cars with significant equity). Since there is not typically a liquidation sale in Chapter 13, filers can keep their property, as long as they make the required payments under the payment plan to provide for the sums which would not be exempt under a Chapter 7.

An attorney can assist you

If you are struggling with debt, it is important to choose the right debt relief solution for your individual situation. The experienced bankruptcy attorneys at Parker & Associates can evaluate your situation and recommend a solution that would best address your debt problem while protecting your long-term interests.