When Should You Consider Chapter 13 Bankruptcy?

Considering filing bankruptcy is never an easy decision, but if you're finding it difficult to keep up with your debts, a bankruptcy might be the best option for your wallet, your credit and your stress levels. Chapter 13 bankruptcies won't discharge all of your debts as quickly as Chapter 7 bankruptcies will, but Chapter 13 is a better option for some people. If you choose to go forward with Chapter 13, you'll receive a proposal for a repayment plan with monthly installments to be paid over a 3- to 5-year period.

Your Income Is High Enough to Pay Your Debts

The first thing to consider when considering filing bankruptcy is your income. Chapter 7 bankruptcies are typically reserved for people who don't have the ability to make payments on their debts. Regardless of what your income is, if you're finding yourself making late payments and unable to keep up with your debts, you can still consider filing bankruptcy under Chapter 13. Since Chapter 13 requires you to pay back at least a portion of your debts, it's the best option for most people who have a regular income.

You're Behind on Your Mortgage or Vehicle Loan

If your home is about to be foreclosed on or your vehicle has been repossessed, a Chapter 13 bankruptcy can give you a better chance of being able to keep these things. When you file a Chapter 7 bankruptcy, any foreclosure sale will be stopped, but it won't automatically remove the arrears, so it's only a temporary solution. When it comes to your vehicle, a Chapter 7 bankruptcy will prevent the lender from putting it up for auction, but the lender won't be forced to return it to you.

You Have Assets You Don't Want to Lose

Many assets are forfeited when you file a Chapter 7 bankruptcy to help creditors recover at least some of the debt you owe. If you have assets that would normally be lost in a Chapter 7 bankruptcy, like a vacation home, filing Chapter 13 instead might let you keep those assets. When you file a Chapter 13 bankruptcy, you must pay your unsecured creditors what they would have gotten in a Chapter 7 bankruptcy from the sale of the asset you're trying to keep. So, if you have a vacation cottage worth $60,000 and $80,000 of credit card debt, you won't lose your cottage as long as you pay the creditor at least $60,000 over the life of your Chapter 13 bankruptcy plan.

If you file a Chapter 13 bankruptcy instead, part of your repayment plan will include how you can pay back your mortgage arrears without interest during the life of the plan. If your vehicle has been repossessed, it will be returned to you and your arrears and sometimes the rest of the future loan payments will be added to your repayment plan.

Always consult a chapter 13 bankruptcy lawyer about the specifics of your situation. Most offer free consultations and can help make the process quicker and smoother.