Monthly Archives: June 2016

Get Back on Your Feet through Chapter 13 Bankruptcy

Records from the United States Bankruptcy Courts show that by the end of 2015 the total number of bankruptcy cases filed in the U.S. was 844,495. Filed under Chapter 7, specifically, was 535,047, while cases filed under Chapter 13 was 301,705.

Bankruptcy is the government’s way of helping individuals, families and businesses find ways to settle their overwhelming debts in order for them to regain control of their financial future. This legal way through which debtors may free themselves from their debts is made available under the U.S. Bankruptcy Code which the U.S. Congress passed into law in 1978. Many Americans, however, shy away from filing for bankruptcy due to the thought that it will affect their credit standing. While this may true, so is staying in debt, with the latter having more damaging effects to their financial future.

When filing for bankruptcy, many individuals choose Chapter 7 of the Bankruptcy Law over Chapter 13. Both of which are available options for individuals and businesses, but differ in some of the benefits they offer, in their requirements for qualification, and in the length of their plan. While Chapter 7 Bankruptcy may last only for a short while, a Chapter 13 plan last from three to five years. Despite its length, Chapter 13 offers benefits not found under Chapter 7, which debtors would find more advantageous than those offered under the latter. These benefits include:

  • Saving their home from foreclosure
  • Debtors can have their creditors modify their mortgage payment. Through a process known as “lien stripping,” debtors’ second and even third mortgages can be modified and, since additional mortgage liens are not secured, a bankruptcy court may even have these stripped or removed.
  • Reduction in their car payment. This is possible so long as the date when the car was purchased has not exceeded 910 days. This reduction is called “cramming down” of a loan; the modification is directed at matching the loan amount with the value of the car.
  • Discharge of tax debts which, like credit card debts or overdue medical bills, can be considered as unsecured debts. This particular benefit is among the least known benefits under Chapter 13.

Generally speaking, Chapter 13 Bankruptcy is some sort of a “pay what you can afford” solution to debtors’ financial problems, regardless of how overwhelming the amount of their debts may be. This long-term payment plan, a benefit not allowed under other Bankruptcy chapters, my just be the type of solution which could help debtors get back on their feet.

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