Benefits of a Chapter 13 bankruptcy

The U.S. Courts reported 157,087 Chapter 13 bankruptcy filings in 2022. Facing financial challenges can be overwhelming, and for some, Chapter 13 bankruptcy offers a viable solution to regain control of their financial future.

Understanding the benefits of this type of bankruptcy can help individuals assess whether it is the right path for them.

Protecting assets

Chapter 13 bankruptcy provides a structured repayment plan. Unlike Chapter 7, which may involve liquidating assets to settle debts, Chapter 13 allows individuals to create a plan to repay creditors, usually over three to five years. This gives filers the opportunity to retain assets that may be unexempt while working towards financial stability.

For example, individuals can catch up on missed mortgage payments through the repayment plan. It allows homeowners a chance to bring their mortgage current and avoid foreclosure.

Granting flexibility

Chapter 13 offers a degree of flexibility that can be advantageous for those with irregular income. The structured repayment plan accommodates fluctuations in income. It allows filers to adjust their payments during periods of financial uncertainty. This flexibility provides a safety net for individuals whose income may vary due to seasonal work, commission-based earnings or other factors.

Protecting co-signers

This option can help protect co-signers from creditor actions. When someone co-signs a loan, they become equally responsible for the debt, but the bankruptcy automatic stay provides relief to them. It prevents creditors from pursuing collection activities. 

While Chapter 13 bankruptcy offers several benefits, individuals should carefully evaluate whether it aligns with their financial goals and circumstances. Filing for bankruptcy is a significant decision, and individuals should consider all factors, not just the benefits.