When is Chapter 13 the Better Option?

Some people want to repay their

debt
, but they are unable to afford the regular monthly payments. Others are behind on mortgage payments due to a temporary reduction in income. Some people have debt that is not dischargeable in a

Chapter 7 bankruptcy

or their income is too high. In each of the above situations, a

Chapter 13 bankruptcy

may be a good option.

A Chapter 13

bankruptcy

is a repayment plan that is based on a person’s income and expenses. If a person can only afford $200 per month based on living expenses, then that’s how much he or she will pay to the

bankruptcy trustee
. Then, the

trustee

will divide the money up among the

creditors
. Like other forms of bankruptcy, creditors are not allowed to

garnish

wages,

foreclose

on property or take other steps to collect the debt. The repayment plan lasts for 3-5 years, then the remaining balance on dischargeable debt is cancelled.

A Chapter 13 can help someone become current on a mortgage payments. The Chapter 13 doesn’t decrease the mortgage payment, so it’s best for someone who missed mortgage payments due to a temporary financial setback. However, a Chapter 13 can be used to cancel a second

home loan

if the home is worth less than the amount owed on the first mortgage. The process is called stripping the lien and can potentially save a debtor a lot of money.

Posted in Chapter 13 Bankruptcy, Creditors, Foreclosure Law
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