When most Americans think of bankruptcy, they envision the liquidation of assets and full discharge of relevant debts. And certainly this type of bankruptcy — known as Chapter 7 — is the best route in many situations. But don't overlook the value of Chapter 13 bankruptcy. Repayment plans through Chapter 13 can provide many benefits for many debtors. Here are five reasons to opt for it.
1. You Still Get Protection.
To qualify for Chapter 7, the debtor must pass the means test, which determines if you have too much disposable income to warrant the discharge of Chapter 7. If you fail the means test, remember that Chapter 13 still offers many of the same protections — including the automatic stay against collections, protection for certain assets, and some discharge at the end.
2. You Can Keep Assets.
One of the biggest perks of Chapter 13 over Chapter 7 is that you're more likely to keep certain assets, including your primary home and vehicles. The reason is that you can often reaffirm secured loans and keep paying them rather than surrender the asset to the lenders. If your bankruptcy concern is keeping the large assets you value, this is the route to do so.
3. You Can Stretch Out Debt.
Chapter 13 is paid off as a three- to five-year payment plan. At the end of this period, the remaining dischargeable debt is wiped away. If you have debts that would be otherwise due in less time — such as tax debt, car loans, or personal loans — you can stretch these out through the entire payment period instead. This lowers the amounts due and could significantly ease your burden.
4. You Have Fixed Payments.
Depending on the type of debt with which you struggle, stable monthly budgeting may be impossible right now. Credit card minimum monthly payments change every month. Loans can go up dramatically if you're late just once. You might have a surprise tax bill. And short-term loans often carry onerous terms. In contrast, your Chapter 13 payment will be a single, fixed amount based on your income — something much more easily planned for.
5. You Pay Your Debts.
Some debtors are hesitant to file bankruptcy because they feel that it's dishonest not to pay their debts. Chapter 13 is a good way to get the protection you need to right your financial ship while still paying all or nearly all of your debts in the end. This could make your moral quandary disappear.
While Chapter 13 bankruptcy may seem like a less appealing option than upfront discharge, it offers many reasons to choose it instead. To help you decide which path is right, start by meeting with a bankruptcy attorney in your state today.