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.