By STEVEN LONG
Many people seeking the relief afforded by bankruptcy want to file a Chapter 7 bankruptcy. I have heard initial disappointment from some in discovering that they do not actually qualify for a Chapter 7. They filed too recently, their income is too high to qualify or because they had property that they wanted to keep. In truth, Chapter 13 bankruptcy is not a compromise. It is often the case that everything Chapter 7 can do, Chapter 13 can do better.
Power 1: Saving the House
If an individual is behind on mortgage payments, a Chapter 7 bankruptcy is a bad solution for that problem. A Chapter 7 can cancel a foreclosure sale but does effectively nothing to bring the account current.
What is often seen as a strength of Chapter 7 is its weakness here – Chapter 7 cases are brief. As is the protection they afford. A Chapter 13 bankruptcy can afford the ability to spread those missed payments out over five years and other options if that is still not enough.
Power 2: Chapter 13 Rate of Interest
I regularly see interest rates that approach 28%. A Chapter 7 bankruptcy can rarely help with unfair high interest rates. In Chapter 13 cases we can often impose a new interest rate called the Chapter 13 bankruptcy rate. This rate usually sits between 4% and 6%. There can be an immense savings in reducing an interest rate of car loan by 10-20%.
Power 3: Cramdown
Many seeking bankruptcy relief have property that they owe more on than the value of the property. We say the property is upside down, underwater or say there is negative equity. A Chapter 13 bankruptcy can give the ability (in specific circumstances) to pay the value of the property instead of the debt on the property. This can be a great value exclusively available to those filing Chapter 13. I have had many clients save thousands of dollars on car loans or financed furniture using this power. Even better, this cramdown can be used with the Chapter 13 interest rate.
Power 4: Child Support, Alimony and Tax Debt Resolution
These are types of debt that largely go into a Chapter 7 case and exit the other side unchanged. In a Chapter 13 bankruptcy, you exit the other side with them resolved. These debts are so strongly favored that payments to them through the case can effectively reduce what’s paid on other debts (credit cards, medical debts, and the like).
Power 5: Student Loan Leverage
Many assume that bankruptcy will not help with student loans. It is most often the case that student loans enter a Chapter 7 case and exit the other side unchanged. A Chapter 13 bankruptcy affords options for dealing with student loans. Most clients will still owe student loans when they exit a Chapter 13 case, but it provides options for paying, delaying, rehabilitating or even challenging student loans.
With an experienced attorney, a Chapter 13 bankruptcy case can provide far more solutions than a Chapter 7 case. Using one or more of the above powers can bring filers far more value and ultimately provide them a much better fresh start. If you are in need of filing for bankruptcy your choice in attorney is an important one, as the attorney does you no favors if they simply agree that you need a Chapter 7 without exploring what benefits a Chapter 13 might provide.