While Chapter 7 deals with unsecured debts, like credit cards and medical bills, Chapter 13 can help address secured debts, such as mortgages or auto loans. Secured debt refers to loans in which collateral is involved. Should a debtor become delinquent in payments, the creditor has the option to seize or foreclose on the asset that was put up for collateral as repayment. In the case of a mortgage, that collateral is the house itself, which means creditors can foreclose on a house. Likewise, a car can be repossessed if payments aren’t made on the auto loan.
Filing for Chapter 13 bankruptcy accomplishes several things:
- Creditors must cease attempting to collect. If you’re flooded with calls and letters, and fearful of losing your assets, filing for bankruptcy immediately stops those collection efforts. You have room to breathe.
- A payment plan is established. Debt can seem overwhelming; reorganization makes it more manageable, allowing you see how you’ll pay off what you owe over a specific period of time.
- No interest is accrued on most debts. During your Chapter 13 bankruptcy process, interest does not accumulate on most of your debts.
- The debtor has no contact with creditors. Worried about facing those aggressive creditors you’ve had on the other end of your phone for months? Don’t be! Under Chapter 13, you will make your payments to a trustee, who will then distribute the payments to the creditors. That middleman ensures you don’t have to directly interact with creditors.
- You keep your stuff! Chapter 13 allows a person to keep their assets. That is the beauty of the Chapter 13. Debt collection is stopped upon filing this form of bankruptcy, so you can save your house, car, or other secured assets by filing.
Once a payment plan has been completed, any remaining part of the debts will be discharged — in other words, they’ll be wiped away.
Speak to an experienced attorney to discuss whether Chapter 13 is right for you. If you’ve fallen behind on mortgage or auto payments or have other late payments such as alimony or child support, Chapter 13 will provide you with the time to get back on top of those payments without facing stiffer consequences. Chapter 13 can be the best option for those who need to press pause and catch up.