Chapter 13 Bankruptcy Benefits
Chapter 13 Bankruptcy offers several benefits over Chapter 7 bankruptcy. While many clients prefer Chapter 7 bankruptcy because payments to creditors are rarely necessary, a Chapter 13 may be a better option because of one of the following benefits. Also, a Chapter 13 bankruptcy may be your only option if your income is too high or if you
- Time to Repay Secured Debt: Chapter 13 bankruptcy gives you time to come current on secured debt such as your home or car.
- Eliminate a Second Mortgage by Stripping the Lien: If the value of your home is less than the amount owed on the first mortgage, then you will be eligible to strip your second mortgage from your home. Upon successful completion of the Chapter 13 plan, your mortgage will be stripped from title and you will no longer have to make payments on your second mortgage
- Pay back missed mortgage payments over 5 years: If you are filing bankruptcy because you have temporarily stopped making payments on your home, Chapter 13 bankruptcy gives you five years to repay those back payments.
- Eliminate potential tax liability that would arise in debt settlement plan: While debt settlement may seem like an attractive option when faced with Chapter 13 bankruptcy, Chapter 13 will not result in the same potential tax liability that a debt settlement would result in.
- Stop Creditor Lawsuits: Like Chapter 7 bankruptcy, Chapter 13 bankruptcy activates a stay that stops creditors from taking actions against debtors including lawsuits. Unless a debtor files for a relief from automatic stay, creditor lawsuits will not move forward.
- Permanently Stop Foreclosure: As stated above, Chapter 13 gives debtors 5 years to pay back back payments on a home. This combined with the automatic stay can result in a full reinstatement of the loan and permanently stop foreclosure. Also, the ability to strip a second mortgage can result in a significant amount of savings for debtors.
- Permanently Stop Repossession: Similar to a home, Chapter 13 bankruptcy gives debtors time to repay their debt on a car. Because debtors are given time under the bankruptcy plan, creditors must accept the plan and cannot repossess a vehicle so long as debtors comply with their plan.