Depending on their individual situation, people filing for bankruptcy on consumer debts may choose between Chapter 13 and Chapter 7 bankruptcy. With a Chapter 13 bankruptcy, also called the “wage-earner’s bankruptcy”, you pay back your creditors during a three to five-year repayment plan. Depending on your situation, Chapter 13 may have multiple benefits.
- Stop foreclosure: If you are behind on payments and your mortgage lender is threatening to foreclose on your house, then Chapter 13 bankruptcy is very useful. Chapter 13 bankruptcy could allow you to stop foreclosure and become current on payments.
- Reduce unsecured debts: You may end up only paying pennies on the dollar for unsecured nonpriority debts during a Chapter 13 bankruptcy. After completing the repayment plan, these debts may be discharged.
- Reduce what is owed on secured debts: Depending on the circumstances, you may be able to reduce what is owed on secured debts if you finish your repayment plan. Some Chapter 13 filers may be able to reduce the amount owed on additional mortgages. For other filers, they may be able to reduce the amount owed on their vehicles.
- Keep nonexempt assets: Some properties or assets may not be exempt from the bankruptcy estate during a Chapter 7 case. With a Chapter 13 case, you may retain your nonexempt assets after finishing the three to five-year repayment plan.
- Protect codebtors: If you have a cosigner on one or more debts, Chapter 13 bankruptcy may extend the automatic stay’s protections to codebtors.
Chapter 13 bankruptcy may have other benefits. However, the benefits of Chapter 13 bankruptcy protection can vary depending on the specifics of a case. For example, not all filers will be able to strip additional mortgages or reduce the values of their vehicles after their repayment plans conclude.
Do I Qualify for Chapter 13 Bankruptcy?
Not all filers are eligible for Chapter 13 bankruptcy. You must be able to show the court that you have enough income to pay back your creditors. However, income in a Chapter 13 case does not necessarily have to come from a job. There are also limits on the amount of secured and unsecured debts for potential Chapter 13 cases.
If you do not qualify for Chapter 13 bankruptcy, there may be alternatives. You should speak with a bankruptcy lawyer at our firm to determine your eligibility for Chapter 13 bankruptcy or other debt relief options. Lewisville bankruptcy lawyer David Shuster can help you pick the best option for your individual situation.