Chapter 13 Bankruptcy: The Top Five Reasons to File a Chapter 13
Chapter 13 is a type of bankruptcy for consumers that allows them to make payments on certain debts, restructure others, and discharge some (or all) unsecured, non-priority obligations. The leading 5 reasons to file such a bankruptcy are:
- Your house is in foreclosure and you need to stop that process. The magic of a chapter 13 bankruptcies is that mortgage or Loan Company can’t go forward with a foreclosure of your home if you have proposed a plan to get them caught up. Thus, if you are $10,000 behind in your house payments, but can repay that amount over to 3 to 5 years, the foreclosure stops!
- You owe the IRS and they are threatening to garnish your wages or levy your bank account. In a chapter 13, you can force them to take payments. Often the IRS will work with you voluntarily to pay off a tax liability. Sometimes, however, the monthly outlays proposed by the IRS are just too large or you are dealing with an uncooperative IRS agent. But in a Chapter 13 bankruptcy, you can force them to take payments if you will be able to cure the deficiency during the plan (3 to 5 years)
- You want to get rid of the second mortgage on your house. If you owe more on your first mortgage than the house is worth and you want your second mortgage or a line of credit secured by you house (a HELOC) to go away, you can make this happen in a Chapter 13. This is called a “lien strip”
- You don’t qualify for a Chapter 7 bankruptcy but you need some relief from debts. BAPCPA, the bankruptcy law that went into effect in 2005, limits individuals seeking to file a Chapter 7 bankruptcy to persons who qualify under the Means Test. Thus, if you make too much money, you can’t file a Chapter 7. Also, BAPCPA only permits you to file Chapter 7 once every eight years. However, you can file a Chapter 13 four years after you have been discharged in a Chapter 7. And if you don’t need a discharge in the Chapter 13, like maybe you are just trying to pay the IRS what you owe them over a three to five year period. This strategy works particularly well with individuals who have a lot of unsecured debt and also owe the IRS taxes that can’t be discharged in a Chapter 7. File the Chapter 7 to get rid of the unsecured debt, then file a Chapter 13 to pay off the IRS over time.
- You own personal property or real estate that isn’t worth what you owe on it, but you still want to keep it. In a Chapter 13, often you can “cram down” the amount you are paying on a vehicle or non-residential piece of property by paying only the actual value to lien-holder, and treating the rest of the loan as unsecured.
These are the top 5 reasons to file a Chapter 13. Consult a good bankruptcy attorney to see if you can benefit from such a filing.