Entering The Door
It is essential to understand that not everyone is eligible for bankruptcy. This is particularly true for Chapter 7 cases, which have stringent income eligibility requirements. In general, Chapter 13 eligibility is significantly simpler for debtors. There are only a few restrictions, including the fact that the debts must be personally incurred and must not exceed $360,475 for unsecured debt and $1,081,400 for secured debt. In order to encourage individuals to redeem their debts, rather than have them discharged in Chapter 7, Chapter 13 eligibility requirements are less stringent. Ultimately, any debts you incur are your personal and legal responsibility. However, the bankruptcy courts are empathetic and recognize that there are instances when people need assistance with debt resolution.
Resolving Debts
The ability to resolve both secured and unsecured debts is one of the greatest advantages of Chapter 13, whereas only unsecured debts are readily resolved in Chapter 7 cases. Since Chapter 13 requires debtors to repay their debts, any assets that are collateral for a secured debt claim are readily protected. Chapter 7 filers may be forced to relinquish the asset if they are unable to recompense, which is ultimately not what people want. In addition, Chapter 13 cases may be able to reduce the principal balances of certain secured obligations. This is possible if qualified debts are separated and a portion of the mortgage or auto loan debt is converted into an unsecured debt to be discharged. When this occurs, the debtor is responsible for repaying only the remaining balance of the secured debt. When debtors owe more on a secured debt than the asset is worth, this benefit of Chapter 13 can be extremely advantageous.
Guarding Your Credit
The capacity to mitigate credit damage is one of the most notable features of a Chapter 13 filing. Although bankruptcy can save and even enhance credit ratings after discharge, the filing remains on credit reports for several years. However, the majority of Chapter 13 filings expire within seven years, while Chapter 7 filings can persist for up to ten years.
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