Benefits to Filing Chapter 13 Bankruptcy

Why in the world would I file a chapter 13 bankruptcy, and pay a monthly payment for the next 5 years, when I could file a chapter 7 bankruptcy and eliminate my debt immediately?

Good question. And believe me; you are not alone in wondering this. However, I have been doing this a while so believe me when I say there are benefits to a chapter 13 bankruptcy. Below I have listed a few.

1.Consolidation of Debts:

Chapter 13 bankruptcy allows you to consolidate all of your current debt into a single monthly payment. Over the course of your plan (3-5 years) you will pay back your secured debt, and a portion of the unsecured.

One important thing to note is that your plan payment amount is calculated based on your specific financial situation – basically the amount your unsecured creditors are paid depends on your disposable monthly income. This means that your plan payment, when correctly calculated, is entirely feasible.

2.Less Stringent Qualifying Criteria:

Many people file for chapter 13 protection because they do not qualify for chapter 7 bankruptcy protection. Remember that in order to qualify for chapter 7 bankruptcy, you must pass the means test. If you income and current financial picture exclude you from chapter 7 bankruptcy, chapter 13 bankruptcy may be an option for you.

3.You Can Keep Your Home When in Default on your Mortgage:

Unlike chapter 7 bankruptcy, where you must be current on your home mortgage in order to keep it, chapter 13 bankruptcy allows you to keep your home while in default. This is true even if a foreclosure complaint has been filed.

In addition, you are not required to make a large lump payment to bring your mortgage up to date. Instead, you can clear a mortgage delinquency in small monthly payments over the course of your entire plan. No additional penalty or interest will accrue

4.You may be able to discharge a 2nd mortgage:

If you second mortgage is entirely unsecured in home equity, it may be stripped of secured status in chapter 13 bankruptcy. This means that both the lien and the personal liability associated with the secured debt will be discharged in bankruptcy so you won’t ever need to pay it.

5.You may be able to reduce the amount of your car loan:

It the current principle of your car loan exceeds fair market value, you may be able to cram down your loan to the current fair market value. That is, regardless of the loan amount, you are only expected to pay fair market value for the car. In addition, we may be able to reduce the interest rate attached to your car loan – which will further decrease the amount you pay on the loan.

6.You may be able to reduce the amount you owe on your mobile home:

Did you read number 5 above? Great, if you own a mobile home, simply re-read what is written above……replace "car loan" with "mobile home loan" as loans associated with mobile homes may also be crammed down when excessive depreciation causes the loan principle to exceed fair market value.

7.You can avoid additional penalties on non-dischargeable tax debts:

Income taxes less than 3 years old are generally non-dischargeable in bankruptcy which means that they won’t be discharged in bankruptcy. However, chapter 13 does allow you to pay these debts over a period of 3-5 years without accumulating additional penalties.

8.Your credit may benefit from your chapter 13 repayment plan:

Many creditors look favorably upon chapter a 13 bankruptcy because it offers some repayment to unsecured creditors and requires a degree of financial discipline. Provided that you make you plan payments consistently and punctually, your credit score may very well increase as you progress through the chapter 13 plan.

9.You can convert to a chapter 7 at any time:

If your circumstances change, you can convert your chapter 13 bankruptcy to a chapter 7 at any time. What’s more, you can include debts incurred after the filing of your chapter 13 petition in your chapter 7 conversion.



See what I mean? Chapter 13 bankruptcy offers many possibilities not available to debtors under chapter 7 bankruptcy protection.