With bankruptcy becoming such a popular topic these days, most people only think of Chapter 7. Although Chapter 7 bankruptcy is the most common type of bankruptcy filing, Chapter 13 can be a powerful financial tool when used correctly. Where a Chapter 7 bankruptcy really shines is for an individual that has a large amount of unsecured debt and has an income that is lower than the median of the state they reside in. You might ask, . A Chapter 13 is better used for an individual that wants to protect the family home and pay back a portion of their debts. With a Chapter 13 bankruptcy just about everyone qualifies. When filing chapter 7, the debtor needs to pass a means test to prove that they cannot pay their debts back. If a debtor fails to qualify under the means test, the bankruptcy trustee will force the debtor into Chapter 13 bankruptcy.
One reason that people choose to file Chapter 13 is to use the power of this chapter of bankruptcy to stop foreclosure. A Chapter 13 bankruptcy will allow the debtor to negotiate with the lender to get caught up on back payments and keep their home. Included in this, is the ability to strip off second trust deeds if the property value has dropped below the value of the first. This will make the second and unsecured debt that will be at the bottom of the pile to be paid. Another huge benefit of a Chapter 13 is the flexibility that it allows. Many times, people’s lives change in the time frame of the bankruptcy. While filing Chapter 13 bankruptcy, the debtor can contact their bankruptcy attorney and modify the payment plan. Depending on the situation, if it’s temporary or permanent, the attorney can make a motion to adjust the payment schedule accordingly. If because of a job loss or medical emergency the debtor may have to get out of the Chapter 13 payment plan. This is not a problem either. If for financial reasons, the debtor no longer can afford the payment plan, they have the flexibility to convert it into a Chapter 7 bankruptcy.