What is a Chapter 13 Bankruptcy? Are There Advantages to Filing Under Chapter 13?
Bankruptcy may frighten many people because they have heard horror stories about debtors losing property or paying thousands of dollars they could not afford to pay. The fact is that filing for bankruptcy relief is an affordable way to get out of debt. Our Parkville bankruptcy attorneys provide a free consultation so that you can get the facts about Chapter 13 and how filing Chapter 13 can help you get out of debt. Take the first step to eliminating debt and becoming financially secure. Chapter 13 vs. Chapter 7 If you are unsure whether to file under Chapter 13 or Chapter 7, you need to consult with a member of the Pinder Plotkin Legal Team. We will analyze your financial situation to determine which chapter of bankruptcy you qualify to file under and what your best option is for protecting property and getting out of debt. A Chapter 7 bankruptcy case is also referred to as a liquidation bankruptcy. When you file under Chapter 7, a bankruptcy trustee determines whether any of your assets have non-exempt equity. The non-exempt equity may be liquidated and used to pay your unsecured creditors. Therefore, if the trustee discovers non-exempt equity, the trustee may seize the asset to sell. In addition, Chapter 7 requires a debtor to meet income requirements. If you have sufficient disposable income to fund a Chapter 13 plan, you do not qualify for a bankruptcy discharge under Chapter 7. On the other hand, a Chapter 13 bankruptcy case is a reorganization. Through a bankruptcy repayment plan, you reorganize your debts into a manageable monthly payment. Through your Chapter 13 plan, you can pay a portion of your unsecured debts instead of paying the full amount owed on each account. Many debtors discharge most, if not all, of their unsecured debts for pennies on the dollar. Some debts are non-dischargeable in a bankruptcy case, regardless of the chapter of bankruptcy filed. For example, you cannot discharge alimony, child support, most taxes, and student loans. However, by filing a Chapter 13 case, you may be able to repay these debts through your Chapter 13 plan to avoid court actions or tax liens. Advantages of Filing a Chapter 13 Even though you are repaying some of your debts through a Chapter 13 plan, there are many advantages of Chapter 13 that you do not have in a Chapter 7 case. Five advantages of filing under Chapter 13 include:
- Stop Foreclosure and Repossession — A Chapter 13 and a Chapter 7 bankruptcy stop foreclosure and repossession. However, only a Chapter 13 case allows you to catch up the past due payments to keep your home or car over a 60-month repayment plan. Under Chapter 7, you need to catch up the mortgage payments or pay the car loan in full immediately to avoid losing your property.
- Pay Past Due Alimony and Child Support — Because these debts are non-dischargeable, you continue to owe these debts after your Chapter 7 case closes. In a Chapter 13 repayment plan, you can pay these debts a little each month until they are paid in full. However, you must pay all future payments on time.
- Protect Assets — As discussed above, a Chapter 7 trustee may seize property with non-exempt equity and sell that property. In a Chapter 13 case, you are not required to surrender the property to the trustee. You can pay a little extra each month to keep this property.
- Lower Car Payments — In a Chapter 13 plan, you can value the loan on your vehicle at the fair market value of the vehicle. In other words, if your vehicle is worth less than you owe on the loan, you can pay an amount equal to the value of the car to satisfy the lien. The remaining balance becomes an unsecured debt.
- Get Rid of a Second Mortgage — If your home is worth less than you owe on your first mortgage, you may be able to get rid of your second mortgage by valuing the lien at “zero.” If you are successful, instead of paying your second mortgage in full, you pay a small percentage of the balance owed on the mortgage to satisfy the mortgage lien.