Chapter 13 Bankruptcy Advantages
Filing Chapter 13 bankruptcy offers immediate protection from collections, while also protecting your assets. This means everything from harassing collection calls to wage garnishments and home foreclosure must stop immediately when you file a Chapter 13 petition. At the same time, an individual filing Chapter 13 needn’t worry that any of her property, vehicles, or other assets will be taken away from her by a bankruptcy trustee as can happen in Chapter 7. This fact alone makes Chapter 13 bankruptcy less stressful for many filing bankruptcy.
Chapter 13 bankruptcy provides several distinct advantages over Chapter 7, including:
- Debtors in Chapter 13 do not have to worry about a trustee liquidating their assets.
- In some cases, an individual in Chapter 13 can lower the balance owed on a vehicle loan and lower the interest on her car payment.
- Chapter 13 provides a payment plan that may allow homeowners to come current on delinquent mortgages.
- Chapter 13 can allow for the stripping off of junior mortgage liens.
- Chapter 13 can deal with tax debts by paying all or in some cases only a portion of delinquent taxes.
- An individual filing Chapter 13 bankruptcy in San Jose will often pay less in up front attorney’s fees than in Chapter 7.
- Unlike in Chapter 7, auto loan lenders cannot force Chapter 13 debtors to sign a reaffirmation agreement for their vehicle loan.
What is Chapter 13 Bankruptcy?
Plain and simple: Chapter 13 is a payment plan. Does that mean that an individual in Chapter 13 bankruptcy must pay all of his debts? No! Only certain types of debts must be paid in full. These include newer (“priority”) tax debts, arrears or delinquent mortgage payments, and arrears or delinquent child/spousal support payments. In general, these are the same types of debts that would not be discharged in a Chapter 7 bankruptcy.
The great majority of consumer debts—like credit card balances, medical bills, unsecured personal loans, balances after a vehicle repossession, and even judgments resulting from collections—are treated in Chapter 13 bankruptcy as “general unsecured claims.” General unsecured debts such as credit cards and medical bills in general do not have to be paid in full through a Chapter 13 bankruptcy.
A Chapter 13 bankruptcy plan must offer to pay such unsecured debts an amount equal to the greater of (a) the debtor’s projected disposable monthly income after necessary living expenses, or (b) the excess value of the debtor’s assets that would have been subject to being taken away (liquidation) in a Chapter 7 bankruptcy. In practice, this means that often the Debtor’s plan does not have to pay anything on general unsecured claims. Sometimes unsecured creditors receive only a tiny percentage of their debt, and the individual in Chapter 13 bankruptcy receives a discharge of the remaining balance upon completing her payment plan.
