Bankruptcy: When a Chapter 13 may be better than a Chapter 7

March 16, 2016 - Categories: Legal Articles

The two most common types of personal bankruptcy filings are Chapter 7 and Chapter 13. Most individuals are familiar with Chapter 7 proceedings, but they are not aware of the benefits afforded by a Chapter 13 filing. In some instances, the Chapter 13 process provides a debtor more flexibility and financial benefits than a Chapter 7.

When you file a Chapter 13 case, you must submit a repayment plan for court approval. Your plan sets forth how you intend to repay your creditors, either fully or partially. The Chapter 13 plan allows you to consolidate all of your debts and make one manageable monthly payment. The trustee assigned to supervise your case collects your plan payments and distributes the money to your creditors according to the terms of your plan.

Although no two filings are identical, a Chapter 13 plan usually:

  • Doesn’t pay unsecured creditors all of the debt owed. The most common types of unsecured creditors are credit cards and medical bills. You are only required to pay a percentage of what is owed on unsecured debts, so many Chapter 13 debtors pay pennies on the dollar owed. In fact, it is possible to pay only 1% of what is owed and it is considered to be payment in full once your case is successfully completed.
  • Permits you to catch-up on delinquent mortgage payments. Depending on your individual financial situation, your repayment plan will last three to five years, which is sufficient time to catch-up on your past due payments and keep possession of your home.
  • Allows you to “strip” off inferior liens from your property. This means that if you have a second (or third) mortgage on your home and your first mortgage lien secures a sum that is greater than the value of your home, there is insufficient equity to support the inferior lien. A Chapter 13 debtor can treat the inferior mortgage as an unsecured debt under the repayment plan. If you believe you may qualify for lien-stripping, you should discuss it with your bankruptcy attorney.
  • Allows you to catch-up on past due vehicle payments. Similar to your mortgage loan, you can make smaller payments on your car loan under your plan to be applied to the delinquent amounts owed on your vehicle loan, which permits you to keep possession of your car.

The above are only a few of the benefits available in a Chapter 13 filing. To learn more, contact Access Legal Care, PLLC. We pride ourselves on offering quality debt/credit-related services with fees that are, on average, 40-60% lower than other firms. We have low initial retainers for bankruptcy cases, and low overall costs that include the filing fee. Contact us by calling 855.583.6521.