Clients often express that they don’t want to be in a Chapter 13 because they don’t want the Court involved in their lives for 3 to 5 years. While understandable, they often also don’t know that, contrary to Chapter 7, the following relief is available in Chapter 13:
- the “stripping off” of a second or subsequent lien on real estate: if your home is worth less than or equal to the balance of your first mortgage loan, you may be able to strip off the second and subsequent mortgage liens. What this means, in plain English, is that, at the successful completion of your Chapter 13 Plan, you would never have to pay the second or subsequent loans again and you get to keep your house (this assumes you can make payments on your first loan).
- the lowering of interest rates on secured debt: no matter when you acquired your property, such as a car, your interest rate might be lowered to a reasonable rate, currently around 5% – 6%.
- the ability to make up arrears on secured debt, taking up to 36 months or more to do so.
- while student loans are generally non-dischargeable, you still get 3-5 years during which you only need make your Chapter 13 payment and do not have to make independent payments to your student loan company.
- you can get up to 5 years to pay a taxing agency, such as the IRS, without incurring interest.
- in most cases, you can keep property you may have had to give up in a Chapter 7.
As you can see, Chapter 13 sometimes is better for the Debtor than Chapter 7. However, only you and your attorney can make the proper determination over which Chapter is right for you (please note that Chapters 11 and 12, also available to consumer debtors, are beyond the scope of this Post).