A Chapter 13 bankruptcy case is one where an individual (or married couple) file a plan to reorganize their debts over a 3-5 year period. A Chapter 13 case is very different from Chapter 7. Rather than wiping out debt and moving on in 100 days, a person instead is instead in a re-structuring plan for a long time. Why would anyone want to do that? There are lots of reasons – the main being that there are things you can do in a Chapter 13 that you cannot do in a Chapter 7. One of the main reasons people do a Chapter 13 case is because they may be able to get rid of their second mortgage (a procedure known as “lien stripping”). You can also get a mortgage that is in default current in a Chapter 13 plan – you can force a bank to stop foreclosure and make small monthly payments over five years to get current on a mortgage that you’re in default on.
You can also forcibly change the terms of a car loan and bring the balance owed on a car down to the value of the vehicle. Also, an advantage to Chapter 13 is that there is no concern about any property being sold to pay creditors – in a Chapter 13 plan that is not allowed. If it’s a rare scenario where a client has some property worth so much money that it might be sold in a Chapter 7 case, then they can simply choose to do a Chapter 13 and not lose anything. A Chapter 13 plan can also be used to resolve tax problems – you can often repay a portion of your overall tax debt and resolve problems with the IRS or FTB. Often, Chapter 13 cases can solve all types of problems for clients and provide them with one low payment that was far less than what they were paying previously and let them have an easy plan to be debt free.
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