When you’re facing mountains of debt that don’t seem to go away, filing for Chapter 13 bankruptcy can offer a lifeline and free you up to potentially regain your financial footing and breathe easier.
Here’s a look at why Chapter 13 bankruptcy could be the right choice to help you get back on track.
Keep Your Property While Managing Debt
One of the biggest advantages of Chapter 13 bankruptcy is that it allows you to keep essential property and assets like your home or car. Unlike Chapter 7 bankruptcy, which often involves liquidating assets to pay off debt, Chapter 13 allows you to create a structured repayment plan over a three- or five-year period. This means you can keep your home and vehicle as long as you continue to make the agreed-upon payments.
This stability is crucial if you’re dealing with secured debts – loans that are backed by collateral like your home or car. By opting for Chapter 13, you don’t have to sacrifice your property to reduce your debt, making it a viable option for people with assets they want to hold onto.
As Amourgis & Associates, Attorneys at Law explain, “Sometimes, experts refer to Chapter 13 cases as ‘reorganization’ bankruptcies because the filer is allowed to work with their creditors to agree to a plan that protects the filer for a specified period, usually three or five years. During that plan period, the filer pays some or all of his or her existing debts.”
Stop Foreclosure and Keep Your Home
If you’re at risk of foreclosure, Chapter 13 can provide immediate relief. Once you file, an automatic stay goes into effect, halting any foreclosure proceedings. This gives you time to work out a repayment plan with the mortgage lender to catch up on past-due payments while staying current on future ones. For homeowners who want to keep their home, this can be a powerful tool to avoid foreclosure and continue to build home equity.
In Chapter 13, you might have the opportunity to catch up on missed mortgage payments over the life of your repayment plan, making it much easier to avoid foreclosure altogether. In situations where you’re trying to stabilize your financial life, keeping your home not only offers peace of mind but also provides a stable environment for you and your family while you work to pay down debt.
Protect Co-Signers on Certain Loans
If you have loans with a co-signer, Chapter 13 bankruptcy can help protect them from being held fully responsible for the debt. Chapter 13 includes a special co-debtor stay, which prevents creditors from collecting from a co-signer while you make payments under the repayment plan. This means family members or friends who might have helped you secure loans won’t have to worry about becoming targets for repayment as long as you’re making your scheduled payments.
This added protection makes Chapter 13 a wise choice if you want to honor your co-signer’s contribution and protect them from collection attempts. It’s an opportunity to take responsibility for your debts without dragging others into the legal and financial complications that come with debt collection.
A Chance to Rebuild Your Credit Gradually
Although filing for Chapter 13 bankruptcy will affect your credit score, it provides a structured way to start rebuilding your credit sooner than if you were to continue struggling with overwhelming debt. Since Chapter 13 involves making consistent monthly payments under a court-approved plan, creditors see that you’re making a concerted effort to pay down your debts. This payment record can work in your favor, demonstrating responsible financial behavior and making it easier to start rebuilding your credit over time.
While it may take several years to fully restore your credit after filing, many individuals find that their scores begin to improve within a year or two of sticking to their Chapter 13 plan. The gradual increase in credit score can make a big difference when the time comes to finance a car, obtain a rental lease, or secure a credit card with favorable terms.
Is Chapter 13 Bankruptcy Right for You?
If you’re considering bankruptcy but want to avoid losing assets, Chapter 13 could be the right choice.
This type of bankruptcy offers protections and benefits that allow you to take control of your finances without sacrificing your home, car, or relationships with co-signers.
Chapter 13 isn’t the right solution for everyone, but if you’re eligible, it can offer a pathway to relief from overwhelming debt while helping you protect your valuable assets. Consider the pros and cons and speak with a bankruptcy attorney about your options. Because one thing is for certain: Sitting still is not something you can afford to do. You have to be proactive in order to deal with the situation you’re currently facing.