Major Advantages of Chapter 13 “Adjustment of Debts”

Posted by Kevin on July 2, 2017 under Bankruptcy Blog | Comments are off for this article

Here are some of the other main advantages of Chapter 13:

1. You can keep your possessions that are not protected by property “exemptions,” preventing a Chapter 7 trustee from taking them from you. Thus you retain much more control over the process of saving your assets, avoiding the unknowns of negotiating payment terms with a Chapter 7 trustee in order to keep your non-exempt possessions. Also, in a Chapter 13 case, you have 3 to 5 years to pay to protect such possessions, instead of the few months that Chapter 7 trustees generally allow.

2. Similarly, if you fell behind in payments on your home’s first mortgage, you have the length of your plan—the same 3 to 5 years–to catch up. That’s in contrast to the few months of payments that a mortgage lender would generally allow if you negotiated directly with it after filing a Chapter 7 case.

3. You may be able to “strip” a second (or third) mortgage from your home’s title, and avoid paying all or most of that mortgage. This can happen if the value of your home is less than the balance of your first mortgage. Mortgage “stripping” may save you hundreds of dollars per month. This is completely unavailable in a Chapter 7 case.

4. You may be eligible for “cramdown” of your vehicle loan. If you purchased and financed your vehicle more than two and a half years before filing your Chapter 13 case, and the vehicle is worth less than the balance on the loan, your monthly payments and the total amount you pay for your vehicle can be significantly reduced.  In contrast, in a Chapter 7 straight bankruptcy case you are usually almost always stuck with the monthly payment and loan balance dictated by the vehicle loan contract.

5. In that same situation, if you are behind on the vehicle loan payments you don’t have to catch up those back payments over a few months. In a Chapter 7 case, almost always you must quickly pay off any arrearage if you want to keep the vehicle.

6. If you owe an ex-spouse non-support obligations, you can discharge (write-off) them under Chapter 13—not under Chapter 7. Non-support obligations include requirements in a divorce decree to pay off a joint marital debt or to pay the ex-spouse in return for getting more of the marital property. Discharging such debts can make a huge difference, often making Chapter 13 well worthwhile.

7. If you have any student loans, under Chapter 13, you can apply for an income driven repayment plan for federal loans and reduce payment on private loans.  In most cases, you are not going to discharge those loans, but you will be able to make affordable payments while in the Chapter 13 plan.   Also, you can use the payment history in Chapter 13 as a basis to qualify for a “hardship discharge” of your student loans.  For more information on student loan debt, please join us on www.studentdebtnj.com.

People often assume they need and want a regular Chapter 7 bankruptcy, and it’s often exactly what they do need. But the above short list gives you some idea of the benefits of Chapter 13 that may make it a much better option. That’s one of the reasons you should talk with an experienced bankruptcy attorney, and do so with an open mind. That’s because sometimes Chapter 13 can give you a huge unexpected advantage, or a series of smaller advantages, which may swing your decision in that direction.