Bankruptcy offers a fresh financial start, but it is imperative to choose the right type. The liquidation of non-exempt assets to pay creditors in Chapter 7 bankruptcy could result in debt discharge in a shorter time, but may come at the loss of property. The Chapter 13 bankruptcy allows the setting up of a repayment plan whereby the borrower can keep their assets while paying back some debts over time. Understanding the differences helps debtors choose which path caters to their interests the most.
Property Protection
Chapter 13’s most important benefit lies in the fact that it allows retaining valuable property such as a home or vehicle. Property lost in Chapter 7 may be sold to satisfy creditors. Under Chapter 13, the entire repayment is done under a structured repayment plan in order to protect the truly essential property. This consideration can come into play especially for homeowners in foreclosure or individuals whose work depends on a vehicle.
Systematic Payment Plans
Another significant advantage of Chapter 12 is that it provides a systematic payment plan that extends over a period of three to five years. This payment plan is based on the debtor’s income level and basic living expenses, thereby facilitating suitable payment for the debtors. Creditors get paid some or all of their dues based on the plan, while debtors do not have to lose their assets all at once. The systematic approach of Chapter 13 also leads to a better environment for budgeting and planning.
The Stopping of Foreclosure and the Rebuilding of Credit
The filing for Chapter 13 automatically stays a foreclosure action on a home and grants the debtors time to become current on missed mortgage payments. This automatic stay is a great relief while the repayment plan is on. A successful completion of the Chapter 13 plan leads to a faster credit recovery, as responsible management of debt during this time period is shown to prospective lenders, as opposed to Chapter 7 remaining on credit reports for a longer duration.
Final Thoughts
While the provisions of Chapter 7 and Chapter 13 alike afford relief from unrelenting debts, Chapter 13 offers unique advantages for individuals wanting to shelter assets, manage payments over time, and stop foreclosure. With this knowledge of the advantages of Chapter 13, debtors can make good choices regarding filing and begin preemptively working toward recovery. Work with an experienced attorney for bankruptcy to create a strategy that works best for your unique financial situation.
This article was written by Alla Tenina. Alla is a top personal injury attorney in Los Angeles, and the founder of Tenina Law. She has experience in bankruptcies, real estate planning, and complex tax matters. The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information. This website contains links to other third-party websites. Such links are only for the convenience of the reader, user or browser; the ABA and its members do not recommend or endorse the contents of the third-party sites.
