Reasons to File Chapter 13

By Kevin Owen

Filing a Chapter 13 bankruptcy petition enables a debtor to pay back debts over a three-to-five year period, through a court appointed trustee. Unlike other forms of bankruptcy, the debtor does not risk losing his home or car through liquidation as long as his monthly payments are current. After successful completion of the Chapter 13 plan, all unsecured debts, such as credit card debt, listed at the time of the bankruptcy filing, are discharged and the debtor's secured debts, such as a car loan or mortgage, are returned to good standing.

Protection from Creditors

Filing for Chapter 13 bankruptcy provides debtors protection from harassment and bill collection efforts of creditors. The filing of a Chapter 13 bankruptcy triggers an automatic stay that prevents home foreclosure and vehicle repossession, as well as most other debt collection efforts. Creditors who violate the automatic stay by continuing to call the debtor may be sued in bankruptcy court and ordered to pay damages to the debtor. Most creditors are also forbidden from imposing any interest or penalties on the debtor while the debtor is in a Chapter 13 bankruptcy.

Easier to Qualify

Unlike Chapter 13, filing under Chapter 7 bankruptcy discharges debts without requiring a repayment plan. However, Chapter 7 bankruptcy imposes a strict debt-to-income means test that limits debtor eligibility. Chapter 13 bankruptcy does not impose a maximum income limitation for filing, thereby enabling most petitioners to qualify for bankruptcy protection. If a debtor does not qualify for Chapter 7, he must file under Chapter 13 to be able to file for bankruptcy.

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Payment Reorganization

The Chapter 13 bankruptcy system organizes all of the debtors debts into a monthly payment plan overseen by a trustee. This payment plan enables the debtor to include all debts -- not simply those that are dischargeable only in bankruptcy -- into a more affordable amount. Chapter 13 will enable the debtor to reorganize student loans, tax liens and alimony payments, and to potentially reduce the amount due each month.

No Mandatory Liquidation of Assets

Under a Chapter 7 bankruptcy, a debtor may be required to sell assets, such as a car, home, jewelry or stocks, in order to satisfy debts before they are discharged. Chapter 13 does not impose any liquidation requirements. As Chapter 13 imposes a payment plan which the debtor must keep current, the debtor may still need to sell stocks or other property to meet his payment obligations.

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Bankruptcy Laws Regarding Mortgage

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