Many consumers filing for bankruptcy overlook the benefits of filing for Chapter 13 instead of Chapter 7. In their rush to be free from debt, they risk "throwing the baby out with the bathwater" in a Chapter 7 filing.
There is no doubt that a significant percentage of filers wind up with Chapter 13 status simply because they fail the means test under Chapter 7. But it's important to remember that there are valid reasons for electing to proceed under the rules of Chapter 13 as well.
Consider these benefits of filing under Chapter 13:
-- You don't have to sell off property that is nonexempt. As long as the court agrees, you may repay your unsecured creditors the amount that's equal to the nonexempt property values that would be obtained through sale of that property.
-- You don't have to lose your vehicle. Stopping repossession of vehicles is possible under Chapter 13. Debtors must repay their debts to the lender, plus arrearages.
If the debt for the vehicle was incurred a minimum of two years prior to the bankruptcy filing, the loan might be eligible to be reduced under a "cramdown" option. The option allows consumers to pay what the vehicle is worth, including interest, in installments over the repayment plan's term.
-- You can stop lenders from repossessing your home. Chapter 13 can halt foreclosures. The court issues an automatic stay, which — at least temporarily — stops foreclosure proceedings. This gives the court time to confirm a debtor's repayment plan. Then, debtors repay all missed payments over time.
-- You don't want the stigma of a Chapter 7 discharge of debts. Like it or not, there is still a stigma surrounding Chapter 7 bankruptcies. Some people still look negatively upon those who file under Chapter 7.
To avoid being considered as a "deadbeat" in some circles, many consumers go with filing under Chapter 13, as that allows them to repay creditors, albeit over a longer period of time.
If you're ready to discuss your debt relief options, the attorneys at The Dodds Law Firm PLC can offer their professional recommendations based on your individual circumstances.