Mortgage Default
If you are behind on your mortgage payment, Chapter 13 bankruptcy may be more advantageous than Chapter 7 bankruptcy. First, you can defend your home from foreclosure with greater certainty than in a Chapter 7 case. In a Chapter 13 bankruptcy, you will be making payments towards the missed mortgage payments. Although bankruptcy exemptions offer protection against the seizure of a home during bankruptcy, some state exemptions rarely cover a property worth more than $200,000 in some states. In many jurisdictions, Chapter 7 does not guarantee the home's protection from seizure. Second, Chapter 13 allows you to repay your delinquent mortgage amounts (arrears) over a specified time period. In many instances, you will be able to make up for delayed mortgage payments without incurring additional interest fees or costs.
Asset Security
Some assets are susceptible to seizure and liquidation, which is the greatest drawback of Chapter 7 bankruptcy. Exemptions from bankruptcy can protect some of your property, but exemption laws vary by state. Due to the wide variation in exemption laws and the limited protection offered by federal law, assets such as your home, automobile, and personal property are at risk during Chapter 7. Chapter 13 carries a significantly lower risk of asset liquidation, primarily because debts are being repaid. As long as you continue to make payments under the Chapter 13 plan, creditors are prohibited from seizing and liquidating your assets.
Income Averages
Many individuals may find Chapter 13 bankruptcy simpler to qualify for than Chapter 7. In order to filter out those who could afford to repay their debts, Chapter 7's eligibility requirements are stringent. Many married couples who file jointly cannot qualify for Chapter 7 because their combined income exceeds the requirements. If your income is greater than the state's median income, you will be eligible for Chapter 13, but not Chapter 7.
Non-Dischargeable Debts
Certain obligations are ineligible for discharge under Chapter 7, but may be repaid under Chapter 13. Numerous individuals file for Chapter 7 without determining whether or not their debts qualify for discharge, resulting in case dismissal and no debt relief. The principal debts that cannot be discharged under Chapter 7 are taxes, student loan debts, alimony/child support payments, and debts incurred through fraud.""
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