The Flexibility of Chapter 13 Bankruptcy

With the economy being in the tank, many Americans are looking for a way out of debt. One of the most common ways for individuals to get out of debt is to file for bankruptcy. When people think about filing for bankruptcy, most people think of chapter 7. Rarely do people think of a Chapter 13 bankruptcy. Many debtors shy away from Chapter 13 because of the payment plan. It seems that they want to eliminate payments and not get into a court ordered Chapter 13 payment plan. Chapter 13 bankruptcy does have a lot of benefits depending on the debtor’s situation. A Chapter 13 will allow the debtor to keep all their property, while catching up on back payments over a 3 to 5 year timeframe. This is a great way for someone who makes a decent income and has accumulated a large amount of unsecured debt, causing them to struggle to make their mortgage. They can afford to keep their home as long as they don’t have to pay all the other bills. Another thing that most people don’t know about Chapter 13 bankruptcy is the ability to strip off the lien of a second and third trust deed. If the value of the property that they are trying to protect has dropped below the amount of the first trust deed, the second and third are no longer secured by the equity in the property and become unsecured debts that can be wiped out in the bankruptcy filing.

In a Chapter 13 bankruptcy debts are paid by priority with secured debts being paid first and unsecured debts end up getting the crumbs that are left over. Many people worry that if they get into a Chapter 13 bankruptcy they won’t be able to keep up on the payment plan. The beauty of a Chapter 13 is the flexibility that the court allows. The bankruptcy court understands that people’s lives change and 3 to 5 years is a long period of time. Stuff can happen, people can lose their job or have a medical emergency that changes everything. When running into a situation where the ability to continue paying becomes a problem, the debtor should immediately contact their bankruptcy attorney to change the Chapter 13 plan. If it looks like it’s going to be long-term, the bankruptcy attorney can also convert it to a Chapter 7 bankruptcy. A Chapter 13 bankruptcy is a misunderstood chapter and has a lot of benefits and flexibility for different situations. Consult a bankruptcy attorney to see which chapter of bankruptcy will work best for your situation.

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