What are the benefits of filing chapter 13 bankruptcy over chapter 7?

In many cases, a person who is experiencing a financial hardship will have the option of filing either a Chapter 7 or Chapter 13 bankruptcy. While each of these types of bankruptcy are similar, there are some important differences. Understanding the benefits of Chapter 13 can help a person to decide which type of bankruptcy is best for his or her personal situation.

Saving the Home

Though not everyone who files bankruptcy will want to keep their home, most people will. Under a Chapter 13, a person can work out a payment agreement with the mortgage holder which will enable them to keep the house. Keeping the house is a significant benefit as a person going through a traumatic financial experience does not need the added stress of trying to find a new place to live. In many cases, second mortgages may be completely wiped away by a Chapter 13 bankruptcy.

Interest and Collection Efforts Stop

When a person files for Chapter 13 bankruptcy, a repayment plan will be proposed and approved by the Court. During the Chapter 13 Bankruptcy, all collection activities must stop and interest will stop accruing on unsecured debts. For those people with credit card debt and other high interest loans, stopping interest accrual and late payment fees will be a serious benefit that will result in significant financial savings. The repayment of unsecured debt is a percentage based on income, equity in property and other legal factors that your attorney will help you understand.  Most cases involved a minimal repayment to the unsecured creditors.

Credit Damage

While both a Chapter 7 and a Chapter 13 bankruptcy will initially have a negative impact on a person’s credit, a Chapter 13 will have less of an impact. A Chapter 13 looks better as it shows that a person was willing to pay on the debts and work out an agreement rather than simply walking away from the debt.  Most Chapter 13 debtors emerge from the process with a substantially higher credit rating than when their case is filed and in most cases are mostly debt free other than their home.

Other Factors

The person filing bankruptcy will make one set payment for a period of three to five years to the Chapter 13 trustee. Upon completion of the payments, the bankruptcy is completed a discharge is issued by the bankruptcy court and the debt is considered fully satisfied at that time.