The Benefits of Filing a Chapter 13 Bankruptcy

Only those people who really do need to go bankrupt should consider the option of bankruptcy. There are several different types of bankruptcy, but for individuals this usually boils down to Chapter 7 and Chapter 13. Of these the Chapter 13 usually offers most people some advantages over the more common Chapter 7. After understanding the differences, you and your attorney should decide which is right for you.

1. Eliminate a Second Mortgage.

You may be able to eliminate a second mortgage or home equity line of credit when filing Chapter 13 in California. This will reduce your monthly outgo so that your first mortgage may be more easily budgeted for.

2. Stop Lenders from Taking Your Home or Car.

By filing Chapter 13, you can stop lenders from foreclosing on your home or repossessing your car. You may even be able to get a car returned that has been repossessed.

3. More Time to Reorganize your Life and Payments.

Chapter 13 gives you more time to reorganize your affairs than when you file a Chapter 7 bankruptcy. Everyone could use some extra time to straighten things out without the ongoing harassment bill collectors seem to excel at.

4. California Bankruptcy Trustee Scrutiny.

Typically California Chapter 13 trustees have a much higher caseload than do Chapter 7 trustees, so your Chapter 13 file will have less scrutiny, and will be less likely to have continual requests for additional information. With the continued trend of more bankruptcy filings and California's budget crisis, this trend will likely continue.

5. Additional Assets May Be Exempt.

By filing a Chapter 13 bankruptcy, you may be eligible to keep things like cars, boats, second homes, RVs, and such that you may be required to sell if you had filed a Chapter 7.

6. Paying Back Unsecured Creditors

It is now possible to file a Chapter 13 with no pay-back to unsecured creditors in some circumstances. As a result, the your plan can be used to pay the California State Chapter 13 Trustee, for legal fees and the secured debts for the property the debtor wants to retain. This is often equivalent to that you would spend for a Chapter 7 bankruptcy.

7. Your Chapter 13 Bankruptcy Can Be Converted to a Chapter 7.

If you later find the benefits of a Chapter 7 to be more advantageous in your case, you can convert it later on, to discharge it. It is not possible the other way around.

The homestead exemption for your home is also based on residency. If you have lived in California less than 2 years, you must use the homestead exemption from the state you moved from. If you've lived in California from 2 years to 40 months, you can use the California exemption, but it is subject to an equity cap of $136,875. If you have lived in California for more than 40 months, you simply use the California homestead exemption.

8. No Need For a Reaffirmation Agreement.

There is no need to sign a reaffirmation agreement because your secured property is accounted for in the Chapter 13 bankruptcy. Only Chapter 7 bankruptcies require reaffirmation agreements.

9. Minimal Oversight by the Federal Department of Justice.

Federal laws favor Chapter 13 filings, so they leave the oversight up to the State Bankruptcy trustees. Less oversight means less red tape and a smoother overall process.

10. Easily Adapted to Account for Your Changing Situation.

Once filed, the Chapter 13 bankruptcy can be easily modified to account to your changing financial conditions. The Chapter 7 version is far less flexible.

11. Back Taxes Penalty Relief.

Once you file for Chapter 13 bankruptcy, your back taxes become part of the case and so are frozen at their current level - in some cases even reduced. This allows you some much needed time to pay them back without interest and penalties.

12. Back Child Support Relief.

As in the case of taxes, back child support and alimony can be included in Chapter 13 bankruptcy so these can be brought current far easier. Some Chapter 7 Trustees will pursue such claims as a source of fees and commissions.

13. Malicious Injury Penalties Discharged.

Willful and malicious injury to property may be discharged in the Chapter 13 bankruptcy, but cannot be when filing Chapter 7. If this is against a person rather than against property you may not be able to bankrupt out of the obligation. This is especially true if a court judgment has already been issued.

14. Divorce Settlement Relief.

The laws covering Chapter 7 bankruptcies have been recently changed, and now settlements not relating to alimony or child support are not dischargeable under Chapter 7 but are under Chapter 13 bankruptcy.

15. Pension Loans Definitions.

According to the Chapter 13 laws, pension loans are not considered debts so are exempted from consideration when calculating your income.

Stephen Brittain is a Bankruptcy Attorney serving Los Angeles, Orange, San Bernardino and Riverside Counties, and all of Southern California. He specializes in helping people who have gotten behind in their bills and need relief from bill collectors, foreclosure on their houses, and other financial difficulties from divorce, disability, excessive medical expenses, and more. Stephen offers a free initial consultation. His web site is http://www.stephenbrittain.com.