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When Chapter 13 Can Be the Better Choice

Hands holding Bankruptcy Law in a court.

Filing for Chapter 7 bankruptcy often seems like the better option when compared to Chapter 13, but this is not always the case. There are many times when people qualify for Chapter 7 but end up using Chapter 13 because it offers better results for their situations. Here are several situations in which Chapter 13 might offer more effective debt relief than Chapter 7.

You Don’t Want to Give Up Property

One of the risks of filing for Chapter 7 is the potential that you will lose assets you own, including cash on hand. The trustee who handles your Chapter 7 case will carefully look at everything you own to determine if you have anything of value. If you do and cannot exempt it in your case, the trustee might require that you surrender these things to the court.  

Chapter 13 cases do not require surrendering assets. Instead, a person filing for Chapter 13 agrees to repay the debts he or she owes. In exchange for repaying debts, the person gets to keep everything he or she owns. If you have a lot of sentimental items you don’t want to give up, then Chapter 13 may be the better choice for bankruptcy.

You Want to Repay Your Debts

Some people are against debt forgiveness. People against debt forgiveness are those who feel better about repaying their debts instead of having the court erase them.

If you want to repay debts you owe, you should choose Chapter 13. When you file for Chapter 13, you will repay most, or all, of your debts through a five-year repayment plan. This offers a way to regain control of your finances without feeling guilty over debt forgiveness.

You Want to Stop Wage Garnishment

Wage garnishments decrease your paychecks, and they are very hard to stop. Filing for bankruptcy is one of the only ways you can stop a wage garnishment for good, and you will have to use Chapter 13 to accomplish this.

With Chapter 7, you can temporarily stop a wage garnishment, but with Chapter 13, you can stop one for good. Instead of having your wages garnished for this debt, you could include the debt in your repayment plan. You will still have to pay the debt off, but it will no longer affect your paycheck if you use Chapter 13.

You Want to Stop a Foreclosure

One of the top reasons people choose Chapter 13 instead of Chapter 7 is to stop a foreclosure from going through. If your lender already initiated the foreclosure process of your home, and if you do not want to lose it, filing for Chapter 13 will put a stop to it.

As soon as you file, your lender is legally required to stop pursuing the foreclosure of your house. Additionally, your lender must give you three to five years (depending on your plan) to catch up on your past-due payments. You will not lose your home if you file for Chapter 13 and make your payments according to the schedule and plan you agreed to.

You Need Lien Stripping

One other house-related benefit of Chapter 13 over Chapter 7 is the process known as lien stripping. The process of lien stripping involves removing junior mortgages (second and third loans) from homes when borrowers owe more on their homes than what the homes are worth.

For example, if you have a second mortgage on your home but owe more on the first mortgage than what the house is currently worth, filing for Chapter 13 could eliminate the second mortgage you have. This process is not something you can use in Chapter 7 cases.

To find out what branches of bankruptcy you qualify for, contact the Law Office of Cowan & Brady. We can help you determine which branch is best for your situation, and we can help you file if bankruptcy will help you with your situation.