In contrast, Chapter 7 is for individuals who do not wish to save their assets or are unable to do so. Each variety has both advantages and disadvantages. Here are the advantages and disadvantages of Chapter 13 bankruptcy.
The Pluses
Chapter 13 bankruptcy filing results in an automatic stay. This indicates that all collection efforts must promptly cease. Any creditor seeking relief from the automatic stay must submit an application with the bankruptcy court. In many instances, the creditor will be unable to obtain relief from the stay, particularly if the debtor complies with the chapter 13 plan that their attorney will draft.
You could possibly save your home. Homeowners frequently fall behind on their monthly mortgage payments due to job loss, medical expenses, or other factors. Chapter 13 provides a convenient method for paying off arrears. Instead of paying them all at once, you can pay them over the course of three to five years. You are still required to make regular monthly payments, but the arrears are spread out over a period of 3 to 5 years.
You might be able to eliminate some mortgage debt. Numerous householders obtain a second or even a third mortgage. If the sum of all your loans exceeds the value of your residence, these additional loans become unsecured. Secured loans entail that if you do not pay your debts, the creditor(s) can sell your assets/home and obtain the funds from the sale.
However, if the value of your property is insufficient to cover the loans, these loans become unsecured. In essence, these loans are similar to credit card debt in that you owe the money, but the creditor cannot seize your assets because you lack any.
Chapter 13 regards secured loans and unsecured loans differently. You are required to repay secured loans in full. Unsecured loans are repaid based solely on the borrower's income. In many instances, unsecured loans are repaid for a small fraction of their value.
If you have only one mortgage but it exceeds the value of your home, you may be able to renegotiate the loan to match the value of your home.
You may be able to save your vehicle, your tools, and other valuables. As long as you make your regular monthly payments, Chapter 13 allows you to pay off the arrears on the financing for these items over the course of three to five years. The payment concept is comparable to the concept of paying off a mortgage.
You might be able to significantly reduce your unsecured debt. Chapter 13 requires the debtor to identify their sources of income and necessary living expenses, such as housing and food.
If you have any remaining funds, you are required to use them to settle your unsecured debts. After accounting for all reasonable expenses, many debtors have very little money remaining, particularly if they are paying for a place to live (through a mortgage or rent) and transportation. In Chapter 13, many debtors only pay a fraction of their unsecured debts.
Possible reduction or elimination of interest payments. If creditors do not have a security interest and you have limited disposable income, you may be able to reduce or eliminate credit card and tax obligation interest.
The Negatives
Chapter 7 may permit some remedies at a lower cost and in less time. Chapter 7 bankruptcy may allow you to enter into a reaffirmation agreement with the car finance company if saving your vehicle is your primary objective.
This agreement allows you to retain the vehicle as long as you continue to make monthly payments and address any arrears.
You may be pursuing an ineffective treatment. It is an admirable objective to save your property. However, sometimes one's finances do not permit it. Instead of continuing to be pressed by payments that force you to choose between shelter and food or shelter and medications, it may be more prudent to let the house go and start over when your finances improve.
You remain insolvent for three to five years. If you do not pay your obligations through a payment plan, they will not be discharged until 3 to 5 years have passed.
Significantly more documentation is required. When you file for Chapter 13, you must submit a complete petition, detailing your income, expenses, and debt. Additionally, you must devise a plan to pay the arrears on secured assets and allocate some funds to unsecured obligations.
Legal fees are more expensive. Your attorney's fees will increase due to the additional labor (and possibly additional hearings) necessary.
Your wages may be garnished in order to guarantee payment.
The Trustee becomes more involved in your financial matters. If you are self-employed, you must make monthly payments to the Trustee in bankruptcy. The trustee may also request additional documentation from you. Additionally, he/she may attach your tax refund.
Multiple proceedings may be necessary to satisfy creditors, the trustee, and the bankruptcy judge.""
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