Bankruptcy may carry a stigma to some people, but in most cases, it is a way for individuals to regain their financial footing without losing all their property.
As opposed to Chapter 7, Chapter 13 bankruptcy allows individuals with a steady income to create a repayment and reorganization plan for all or part of their debts. A Chapter 13 Plan is either three or five years, and as long as you don’t exceed the Chapter 13 debt limits, during this time you can make installment payments to your creditors to resolve your debts. If your monthly income is under the applicable state median, your plan will be for three years, however, you may have the option to extend it to five years. If your monthly income is above the applicable state median, then your plan must be five years long. For however long your plan is in place, creditors are forbidden by law from the beginning or continuing collection activities against you as long as you comply with your plan.
One of the major benefits of Chapter 13 is that individuals who file for Chapter 13 have the chance to save their homes from being foreclosed upon because they can reinstate their mortgage. After filing, foreclosure proceedings can stop and late mortgage payments may disappear over time as you repay them through your plan. While you repay your arrears, you must resume making normal monthly mortgage payments every month in order for your Chapter 13 Plan to be successful and for you to keep your home.
Although less common, you can also use the Chapter 13 process to get back on track with mortgages on property that may not be your home, such as an investment or rental property. The same rules apply- you pay back your arrears over 60 months while resuming normal monthly mortgage payments.
Another advantage is that Chapter 13 lets individuals restructure other secured debts, such as car loans or loans on personal property, and extend them over the course of the Chapter 13 repayment plan. By doing so, you may be able to lower your payments. Examples of restructuring that can occur are that your interest rate could be lowered and if certain rules are met you may also be able to pay the value of the property over your Chapter 13 plan as opposed to the loan balance, which may be significantly higher.
Third parties and co-signers who are also liable for the loans can also be protected with a Chapter 13 as well because Chapter 13 contains a stay of collection against a co-borrower as long as the debt is consumer debt. You can also treat co-signed debts more favorably than other debts in your Chapter 13 case and protect friends or loved ones.
Fourth, Chapter 13 is a great way to deal with tax debts, which again can be restructured and paid out over the life of the plan. In addition, very often, penalties can be completely discharged without payment in Chapter 13- this also includes penalties for nondischargeable taxes as long as certain rules are met.
Lastly, Chapter 13 consolidates your debts into one repayment plan overseen by a Chapter 13 trustee. The trustee then distributes the payments to creditors, meaning there is no direct contact between debtors and creditors.
There are many more benefits to Chapter 13 and Chapter 13 can be tailored to your specific situation.
If you have further questions on Chapter 13 or bankruptcy in general, reach out to Natasha Meruelo, Esq. and set up a free consultation!