The Advantages of Chapter 13 Bankruptcy
For times when debt gets out of hand, Chapter 13 bankruptcy is an
ideal financial option. Repaying debts is very important to some
people. Unfortunately, circumstances sometimes stand in the way of
this goal. Although it will be a big blemish on your credit report,
Chapter 13 allows you to repay your debts through a court-appointed
trustee while requiring the creditors to stop their actions to
collect the debts. This is also an ideal option for homeowners who
have fallen behind on mortgage payments because it allows them to
catch up on payments without losing their home.
Foreclosures are the biggest reason that most people choose Chapter
13 bankruptcy rather than the more attractive Chapter 7. With
Chapter 13, homeowners who face foreclosure proceedings can halt the
legal actions by choosing this bankruptcy option. A court appointed
bankruptcy trustee will act on the behalf of the homeowner to make
provisions with the mortgage company. The homeowner is then allowed
to make their monthly mortgage payments with an extra amount each
month until they have caught up on their delinquent payments.
Another thing that Chapter 13 bankruptcy affords to debtors is the
opportunity to repay secured debts over a period. Oftentimes, the
payment plans reduce the amount of the monthly payment that the
debtor was paying. While Chapter 7 is the most popular option in
bankruptcy, many people choose Chapter 13 because they feel a moral
obligation to repay their debts. This type of bankruptcy gives them
the help that they need to negotiate with their creditors. It also
provides some "wiggle room" for repaying debts with a timely
schedule. Psychologically, this form of bankruptcy is less
detrimental to people's self-images because they have fulfilled
their financial obligations rather than simply having them
completely discharged.
Chapter 13 bankruptcy is similar to entering into a debt
consolidation loan, which is often an option many people exhaust
before having their debts discharged by courts. Both instances
involve the debtor giving the monthly payment to an appointed
trustee. The trustee then relegates the payments to the creditors
according to the agreement. For purposes of getting a mortgage, many
companies view both of these equally. In other words, a debt
consolidation loan is the same thing as filing for Chapter 13
bankruptcy in the eyes of many mortgage companies. One advantage of
these options is that the debtor does not need to have direct
contact with the creditors who can have a significant negative
impact on a person's self-esteem.
Many debtors might choose to file under Chapter 13 bankruptcy
because they have loans that required co-signers. With this type of
bankruptcy, the third parties are protected from the creditors. This
means that the creditors can no longer pursue either party in an
attempt to collect the debt. They must deal with the trustee that
the court appointed to the particular case if they have any
questions or concerns.
In bankruptcy, debtors have options to help them receive a fresh
start. For others who are not comfortable with completely
discharging their debts, Chapter 13 bankruptcy affords them the
opportunity to repay their creditors through a court-appointed
trustee. This is sometimes ideal because it teaches people about
behavior change when it comes to their finances. Not only that, but
it also gives debtors a psychological peace of mind by knowing that
they did not completely disregard their adult responsibilities.
