Three times when Chapter 13 is likely the better choice

As an individual, if you are having financial difficulties, you have a choice between two types of bankruptcy: Chapter 7 and Chapter 13. Since most individuals file Chapter 7, you may assume that it would be right for you. Although this may be the case, there are several instances when filing Chapter 13 would likely be a better plan.

You are having problems paying the mortgage

One group of people that clearly benefit from Chapter 13 over Chapter 7 are those that are behind on their mortgages. The reason for this is that Chapter 13 gives you extra help in catching up on the mortgage that is simply not available in Chapter 7. Once you file bankruptcy, the foreclosure process is immediately halted. In Chapter 13, your overdue mortgage debt becomes part of the payment plan. Pursuant to the plan, you pay the amount that you are behind on your mortgage in monthly installments over three to five years. Since this is quite a long time, the amount you must pay each month is affordable. As long as you keep up with the payments, you are protected against any additional foreclosure activity.

In Chapter 7, on the other hand, if you do not bring your mortgage current within a fairly short period (a couple of months), your lender can ask the court to allow it to restart foreclosure proceedings. As a result, Chapter 7 is generally not ideal for those that are significantly behind on their mortgages.

You are at risk of losing property

If you own significant amounts of property that is not exempt from liquidation by law (e.g. second homes, multiple cars, large amounts of cash or luxury items), Chapter 13 is also a better fit. During Chapter 7, this type of property is sold to pay your debts. However, in Chapter 13, you can keep all of your property while you repay your required debts under the payment plan.

You owe large nondischargable debts

Although bankruptcy is a powerful tool, not all debts can be discharged in bankruptcy. If you owe significant nondischargeable debts, such as student loans, alimony, child support and taxes, Chapter 13 may be the better type of bankruptcy for you. In Chapter 13, these debts become part of the payment plan, allowing you three to five years to become current on them (or pay them off entirely). As long as you make the required payment each month, you are protected against lawsuits and garnishment proceedings concerning these debts.

An attorney can help you

Although you may be convinced about the right type of bankruptcy for you, it is important to get the advice of an experienced bankruptcy attorney before filing. An attorney can listen to your situation and advise you on the best way to proceed.