Why File Chapter 13 Bankruptcy?

Why file a Chapter 13 bankruptcy? There are three main reasons to file Chapter 13 bankruptcy.

1) Chapter 13 is for people who have the means to repay their debts.  This means that they have some money available to make payments.  They make more that what is required to live on, but may not be able to pay their debts as fast as the creditors want, or maybe not in full.  Chapter 13 may be able to reduce what is paid if you can’t afford to pay in full, or it might just give you more time to pay the debt.

2) Chapter 13 is for people who are behind on secured debts or need to reorganize the repayment terms. Secured debts are payments on things that have collateral, like houses, cars and personal property loans.  It might even be able to reduce what is owed on a debt if the value of the property is less than what is owed.  That will depend on how long someone has owned property, and whether or not it is a person’s residence.  Currently a mortgage secured by a person’s home can’t be reorganized, but missed payments can be caught up over time. (This may change soon since Congress is discussing allowing mortgages to be modified in Chapter 13 bankruptcy.)   Chapter 13 bankruptcy can give you up to five years to catch up missed mortgage payments and it can stretch out the time to pay off a car and other non-residential property debts.

3) Chapter 13 bankruptcy is for people who want to keep their property.  If they have non-exempt property that would be taken from them if they filed for Chapter 7, and they want to keep it.  So long as the payments into the Court cover at least the value of the non-exempt property, the debtor can keep the property.