Is Chapter 13 Right for You? How to Decide

If your debts have been piling up without hope of repayment, you may have already heard about how Chapter 7 bankruptcy can help you. However, you may not be as familiar with Chapter 13, as it is filed less often by individuals. Although Chapter 7 may offer the relief that you are looking for, if certain things are true about your situation, Chapter 13 might actually be a better fit for you.

If You Are Pending Foreclosure

If you are currently at risk of losing your house in foreclosure (or are behind on other forms of secured debt) Chapter 13 may be especially useful. This is because it allows you to roll your missed mortgage payments (or secured debt payments) into the payment plan. Under the plan, you have three to five years to catch up on your missed payments. While you are catching up with your payments, you can stay in your house (or keep the collateral securing your secured debt).

If you file Chapter 7 instead, it can eliminate your obligation to repay your secured debts. However, it does not affect your creditor’s right to foreclose on your house (or repossess the collateral) if you do not stay current on your mortgage or secured debts. As a result, unless you can keep your secured debt current during bankruptcy, you would risk losing your home or the collateral securing the debt by filing this type of bankruptcy.

If You Own Nonexempt Property

If you own property that is subject to the liquidation sale in Chapter 7, such as vacation homes, multiple cars or other luxury items, filing Chapter 13 may be advantageous. This is because there is no sale in Chapter 13, so you can keep all of your property during your bankruptcy, as long as you keep up with your obligations under the payment plan.

If You Have Pending Debts with a Loan Cosigner

Chapter 13 is also useful if you have pending debts with a cosigner. This is because Chapter 13 prevents creditors from going after your cosigner for the remaining amount of the debt once you file bankruptcy. Chapter 7 does not offer this protection.

After You Speak with an Attorney

These are just a sample of when Chapter 13 may potentially be the better choice. Since the choice of bankruptcy is a decision that can mean the difference between success and failure when it comes to managing your debts, it is vital to consult with an experienced bankruptcy attorney. An attorney can consider your personal situation and recommend the best debt relief approach.