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Should You File Chapter 13 Even If You Qualify For Chapter 7? It Depends…

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Chapter 13 better than Chapter 7? Sometimes...

Image Source: Flickr User Nick Watts

Not everyone will qualify for a Chapter 7 bankruptcy in North Carolina, but so long as you have a job, you should qualify for Chapter 13 bankruptcy protection. But sometimes, even those that qualify for Chapter 7 may find a Chapter 13 preferable even though it offers less extreme and less instantaneous debt relief. Here’s some reason to consider a Chapter 13 over a Chapter 7.

#1 Chapter 13 may stop a foreclosure for good

While both Chapter 13 and Chapter 7 can stop a foreclosure in its tracks, if you’re behind on your mortgage and can’t catch it up ASAP, a Chapter 7 may only buy you a few months’ relief. In contrast, a Chapter 13 plan can help you catch up on delinquent amounts through a three to five-year repayment plan while still making your current mortgage payments.

#2 Chapter 13 can demolish a second mortgage

If you have a second mortgage or HELOC on your home and not much (or no) equity in your home, a Chapter 13 may be able to get rid of the debt on your home beyond your primary mortgage. This is called “lien stripping” and is only available in a Chapter 13 bankruptcy and converts the second mortgage to an unsecured debt which can make a huge difference in your finances.

#3 Chapter 13 still helps with unsecured debt

While a Chapter 7 bankruptcy usually wipes out unsecured debt like credit cards and medical bills completely, Chapter 13 can also discharge most of these with little of the debt paid. Your Chapter 13 repayment plan will focus first on catching up balances owed on secured debt like mortgages and car loans and at the end of the payment plan, remaining balances on unsecured debt are discharged.

#4 Chapter 13 protects cosigners

If you have shared debt such as a cosigned auto loan, filing Chapter 13 will buy you time to catch up on it while also shielding a cosigner. For instance, if your spouse or parent cosigned the note and you file Chapter 7, you can give up the debt as long as you also surrender the vehicle and it will be discharged. But any balance owed can still be collected from your cosigner. Chapter 13 can be a shield.

#5 Chapter 13 is like an interest-free consolidation loan

Some consumers deep in debt will take out a consolidation loan to pay off their debts. However, this can come with fees and interest charges. With Chapter 13, you will pay an attorney fee for filing, but then no interest. Your payments will go to your bankruptcy trustee who will dole out payments to your creditors according to your plan. At the end of the plan, unsecured debts are discharged, and you’re done.

When Chapter 7 is preferable

If your income or debt to income ratio allows you the option of Chapter 7, it may be a better option if you are current on your secured debt like mortgage and auto loans. Also, if your equity or assets can be protected by North Carolina bankruptcy exemptions, a Chapter 7 may be better since it’s a faster process and offers sweeping and fast debt relief.

Don’t decide which is preferable without first consulting an expert North Carolina bankruptcy attorney. Bring in your financial information and sit for a free consultation and listen to what the attorney recommends. A reputable attorney will tell you the pros and cons of Chapter 13 versus Chapter 7 and how each will affect your finances - then you can make an informed decision.

To find out more about getting out of debt, contact the Law Offices of John T. Orcutt. Call +1-919-646-2654 now for a free North Carolina bankruptcy consultation today at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.

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