When it comes to choosing a bankruptcy chapter, many debtors prefer Chapter 7 bankruptcy because it allows them to discharge most or even all of their unsecured debts, while Chapter 13 bankruptcy requires that they repay part or all of them debts over the course of 3 to 5 years..
But there are some valuable benefits of Chapter 13 bankruptcy that debtors should not overlook:
- When a debtor files Chapter 13 bankruptcy, they can keep both exempt and non-exempt assets while they repay their debts. This can be especially helpful to debtors who have assets whose value exceeds the exemption limits of Chapter 7 bankruptcy. For example, a debtor who owns a luxury vehicle may be allowed to keep that asset while they are in Chapter 13 bankruptcy.
- Some debts which are not dischargeable in Chapter 7 bankruptcy can be significantly reduced in Chapter 13 bankruptcy. For example, a loan on a car might be reduced if the value of the car is significantly less than the loan.
- Chapter 13 bankruptcy can help a debtor avoid a wage garnishment for debts which are not dischargeable in Chapter 7 bankruptcy; but can be repaid in Chapter 13 bankruptcy.
- Chapter 13 bankruptcy debtors may be able to reduce the interest rates on certain loans.
- Co-signers are offered protection when a debtor files for Chapter 13 bankruptcy, because creditors are not allowed to go after co-signers as long as the debtor makes bankruptcy plan payments.
- Debtors may be able to extend the payment term on some of their debts when they file Chapter 13 bankruptcy.
- When a debtor files Chapter 13 bankruptcy, they may be able to avoid foreclosure by curing a default on their mortgage over the course of 3 to 5 years.