Advantages of Chapter 13

Not everyone can chose between filing Chapter 7 or Chapter 13 Bankruptcy. If for example you do not have a steady income you can only file Chapter 7 Bankruptcy or if your debt is over a certain amount (currently $336,900 unsecured debts; $1010,650.00 secured debts).

However in certain cases you may opt for a Chapter 13 to take advantage of its power to avoid foreclosure and car repossession. Under Chapter 13 if you are late in your mortgage or car payments the Chapter 13 plan will allow you and force the lender to accept monthly payments over the three to five year plan period to make up for the missed payments. Under Chapter 7 you will have to pay all missed payments at once or you will lose your house or car.

Cram Down your car loan

If you want to keep your car but its market value is less than the balance of the loan under Chapter 13 Bankruptcy you can cramdown the loan to the replacement value of the car over the plan period. You may be able to save several hundred dollars using this method.

Protect Your Co-Debtor

If another person owes money to your creditor as a co-debtor this person is protected if you file Chapter 13. If however you file Chapter 7 the co-debtor would be exposed to collections and law suits by your creditor.

Minimize your obligation to non-priority creditors

If you have significant priority debt such as taxes or student loans you must first pay these creditors before any money goes to non-priority creditors such as credit card debt. You may end up paying a very low amount or even nothing back of your credit card or medical bills in Chapter 13.

Another advantage of Chapter 13 is that you may be able to remove the second mortgage from your home. Read more about this so-called lean stripping.