Chapter 13 bankruptcy can save your house from foreclosure and allows you to discharge your debts for pennies on the dollar. Chapter 13 allows you to get certain benefits that are not available in chapter 7. Chapter 13 is right for you if you fall into any of the following categories:
- Saving a House From Foreclosure – because chapter 13 allows you to payback the missed mortgage payments over time, you can save your house from foreclosure. You have up to 5 years to payback missed payments through chapter 13. The bank is required to take these payments and cannot add additional interest or penalties while you are in chapter 13
- Get Rid of a Mortgage – if you have more than one mortgage on your house, then you can eliminate one or more of the additional mortgages. You cannot get rid of your first mortgage and keep your house, but any junior mortgage is fair game. This is a simple process based on the value of your property at the time you file bankruptcy.
- Reduce Car Payments – if you have had your car for more than 2.5 years, and the amount due is greater than the current value of the car (i.e. it’s underwater), then you can reduce your car payments and your interest rate. This is especially useful, if you rolled an old car loan into a new car loan.
- Back Taxes – if you have tax debts that are too recent to be discharged in chapter 7, then you can pay them back through the chapter 13 and get rid of your other debts at the same time. If you just did a payment plan with the IRS, then you would be stuck paying all of your other creditors at the same time as you paid the IRS. In chapter 13, the IRS gets paid ahead of other creditors, and those other creditors must accept whatever is left over.
- You Don’t Qualify For Chapter 7 – if you do not qualify for chapter 7 because 1) you had a chapter 7 discharge in the last 8 years, 2) your income is too high, or 3) you need to protect very valuable property like high end jewelry, then chapter 13 is an affordable debt solution for you. Chapter 13 is usually quicker and cheaper than paying debts on your own, and requires your creditors to follow the bankruptcy laws.
Chapter 13 Is Superior to Debt Consolidation
You may wonder how chapter 13 is different from debt consolidation or debt settlement. There are two important ways that chapter 13 differs from debt consolidation or debt settlement. First, chapter 13 is cheaper. In debt consolidation/settlement, you will pay more to setup the repayment plan than you would pay in attorney’s fees for a chapter 13. Second, chapter 13 works because it is controlled by the federal courts. In debt consolidation/settlement you could make the payments for months or years, and your creditors could decide that it wasn’t enough. In chapter 13, federal law requires your creditors to accept whatever they receive through the plan and to forever stop collection efforts against you; even if they only get pennies on the dollar.
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