When deciding to file bankruptcy, you might feel overwhelmed by your various options. While many people think Chapter 7 bankruptcy, which eliminates debts, is their best option, it's critical to also look into Chapter 13 bankruptcy as a potentially wise alternative. Chapter 13 bankruptcy involves "reorganizing" your debt and creating a manageable payment plan that typically lasts for five years. Here are a few times when it may make good financial sense to file Chapter 13 bankruptcy:
You Are Still Able to Make Some Payments
If you have disposable income, even a little bit, you most likely qualify for Chapter 13 instead of Chapter 7 bankruptcy. For bankruptcy purposes, disposable income is defined as any income left over from your income after your living expenses.
Under your Chapter 13 bankruptcy plan, pretty much all of your disposable income will go toward paying off your debts. The reassuring thing about this is that any debts that go beyond what you can afford to pay from your wages will be liquidated and you will no longer be responsible for them.
You Have Cars and Houses
Unlike Chapter 7 bankruptcy, your homes, cars and other property are protected under Chapter 13 bankruptcy. For many people, the loss of their home and other assets can be the most difficult aspect of filing bankruptcy. Getting to keep your property under Chapter 13 often provides great peace of mind.
In addition, your mortgage and car payment terms can often be renegotiated to be more manageable as part of your debt restructuring plan. In some cases, you can also make up missed mortgage payments, which can help prevent losing your home to foreclosure.
You Have a Second Mortgage You'd Like to Eliminate
One unique feature of Chapter 13 bankruptcy is that it sometimes allows second mortgages or home equity lines of credit to be completely discharged. This process is known as "lien stripping" and can be a huge financial relief if your original mortgage payment was manageable but you've become weighed down by your second mortgage payment.
This benefit typically applies to homeowners who now owe more on their home than it is actually worth, a challenging situation many homeowners face. Be sure to ask your bankruptcy attorney if this feature is available in your state and can be written into your Chapter 13 bankruptcy plan.
If you think Chapter 13 bankruptcy might be the best solution for you and your family, be sure to set up an appointment with a bankruptcy attorney such as Kreisler Law PC Chicago to discuss all of your options.Share