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.
Chapter 13 also protects third parties when a debtor files bankruptcy. This means that if a debtor acquired an auto loan, a home loan, or any other type of loan in which a co-signer was needed, the co-signer is not affected by the bankruptcy. Typically, if a debtor does not repay a loan, the creditor has the right to sue either the debtor of the co-signer on the loan. In Chapter 13 bankruptcy, however, this is not the case. The co-signer receives a type of protection from the creditors so their credit remains intact.
Bankruptcy was designed to offer consumers a fresh start after getting into a tough financial situation. Some people, however, prefer to repay their debts due to financial reasons or moral obligations. For these people, the courts offer Chapter 13 bankruptcy as a viable option. Not only does it require the creditors to stop contacting the debtor, it also protects homes from foreclosures and third parties from legal recourse. Chapter 13 has several advantages for those who are trying to honestly fulfill their obligations.
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