There are two main types of consumer bankruptcy in the United States: Chapter 7 (the most common) and Chapter 13. Chapter 13 bankruptcy is commonly referred to as the wage earner’s plan in that you will have a certain amount of income coming in that you can use to eventually pay down all your debt. This type of bankruptcy allows you to make a repayment plan that lasts from 3-5 years and has several benefits over the “liquidation”, Chapter 7 bankruptcy.
What are the Advantages of Chapter 13 Bankruptcy?
To begin with, the main advantage of a Chapter 13 bankruptcy is that it can halt or prevent a home foreclosure. Once your bankruptcy petition is accepted, an “automatic stay” occurs which bars collectors from contacting you and immediately halts the foreclosure process. While this stay is a temporary it can help buy you some time and make certain arrangements needed to keep your home.
Secondly, a Chapter 13 bankruptcy doesn’t stay on your credit report as long as a Chapter 7 does; 3 years less in fact. A Chapter 13 bankruptcy stays on your credit report only 7 years while a Chapter 7 lasts 10 years.
If you have more than one mortgage, a Chapter 13 bankruptcy can also help remove the secondary mortgage through a process called “lien stripping”.
Lastly, you may be able to lower your payments in a Chapter 13 bankruptcy. When you restructure your debts, you can extend them over the entire length of the Chapter 13 plan which can last as long as 5 years. This can in effect help you lower your payments.
If you aren’t sure which type of bankruptcy is right for you, contact a Houston bankruptcy attorney specializing in bankruptcy to find out which form of bankruptcy could be of most help in getting you back in a good financial standing.