If you're considering bankruptcy, chances are that a simple chapter 7 is your best bet. However, there are many cases where a chapter 13 could provide more protection and still eliminate a great chunk of your debt.
Here are five big advantages of using a chapter 13 payment plan rather than a chapter 7.
1. Keep All of Your Property
It's true that most people who file for chapter 7 will keep all or most of their property, but for those people who have large amounts of non-exempt equity in real estate or other property, that collateral could be at risk of liquidation in a chapter 7.
In a chapter 13, you keep all of your property as long as you can continue to make payments on that property which is financed, like a home mortgage or car note.
2. Stop a Foreclosure & Catch Up on Past Due Mortgage Payments
While both chapter 7 and chapter 13 bankruptcy will stop a foreclosure action temporarily, only a chapter 13 will allow you to keep the home permanently and repay the past mortgage debt over time as part of the payment plan. In a chapter 7, you would probably have to come up with all the money at once to stave off the foreclosure after the bankruptcy was completed.
3. Protect Co-Signers on Your Debt
If you have a cosigner on some of your debt, they would still be liable for any debt they cosigned on, even though you got that debt discharged in a chapter 7. However, in a chapter 13, cosigner liability is also eliminated as long as the payment plan repays some of that debt.
4. The Plan Can Be as Short as 36 Months
If you elect to file a chapter 13 even though you can pass the means test and get into a chapter 7, your payment plan will only be three years, as opposed to five for those who don't qualify for chapter 7 based on income.
5. Cram Down Some Secured Debt
A chapter 13 "cram down" allows you to strip off the "unsecured" portion of some secured debts. For example, if your car is worth $10,000, but you still owe $20,000 on the car note, you could strip off that $10,000 "unsecured" difference, repay the remaining $10,000 over time and keep the car.
Learn More
If you want to learn more about chapter 13 and chapter 7 bankruptcy, see the links below to some great resources of information:
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