A Chapter 13 bankruptcy has similar goals to a Chapter 7. The ultimate goal of both is to discharge debt and provide the honest, but unfortunate Debtor with a fresh financial start. But the Chapter 13 bankruptcy is a three-to-five-year payment plan, whereas most Chapter 7s result in a discharge within approximately 4 months from filing. So here, we will go over some of the top reasons a person would file a Chapter 13 bankruptcy instead of a Chapter 7.
- A Chapter 13 bankruptcy can halt a foreclosure and allow the home owner to catch up on their mortgage payments. If you are behind on your mortgage payments, and it seems less and less likely that you will be able to catch up, a Chapter 13 bankruptcy will allow you to pay your arrearage over three to five years and stay in your home.
- A Chapter 13 bankruptcy can allow you to “cram-down” the debt owed, including interest, on a car. If you’ve purchased a car more than 910 days before you file a Chapter 13 bankruptcy, you can decrease the amount that you will pay to the value of the vehicle. For example, if you owe $15,000 at 20% interest on a car that’s now worth $7,500, then you can propose to pay only the $7,500 of value of the vehicle with an interest rate of 5.25%. In that example, the car owner would save over $14,000 just by paying their vehicle in a bankruptcy case. If the car owner purchased their car less than 910 days ago, they can typically cram down the interest, but not the value of the property. The Bankruptcy code allows this under 11 U.S.C. § 1325(a)(9).
- Some debts are dischargeable in a Chapter 13, but not a Chapter 7. This includes debts accrued in a divorce decree (not characterized as support), and some non-criminal government fines.
- A Chapter 13 allows you to pay some priority debts like taxes or child support over three to five years instead of being forced to pay it immediately or over a shorter time.
Although many think the only reason to file a Chapter 13 over a 7 is because they make too much money, in many instances this is not the case. Anyone considering a bankruptcy case should take care to run through the analysis of each to decide which is the best for them. At Kootenai Bankruptcy, our experienced attorney will be able to walk you through each option, and move forward with the option that is best for you. Call or text us today at (208) 719-0232 and we can discuss your options.