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What are the most common reasons for filing Chapter 13?

Chapter 13 has advantages for those who can afford a bankruptcy repayment plan

Chapter 13 bankruptcy is filed far less frequently in U.S. Bankruptcy Court than the Chapter 7 liquidation petition. However, it fits the needs of those who are in serious debt, but still have a regular monthly income and can afford to pay their creditors at least some of what is owed.

According to BankruptcyHQ.com, debtors who enter a court-approved repayment plan over three to five years are granted an automatic stay that prevents creditor collections and lawsuits until their plan is completed.

The website states that, under Chapter 13, debtors are allowed to repay creditors at a reduced amount based on what they can afford to pay. It also forces creditors to accept the terms approved by the bankruptcy court.

Perhaps most important is that people who may have been facing a foreclosure of their home or repossession of their vehicle can stop these actions by filing under Chapter 13. A mortgage company must accept repayment of the arrears and stop the foreclosure. Car repossession is stopped in the same way, and the past due and future payments are folded into the repayment plan. In addition, the filing stops wage garnishment and tax liens that may have begun before a debtor filed bankruptcy.

Those who file Chapter 13 often have a significant amount of debt that cannot be discharged in bankruptcy - including student loans, back taxes and arrears in child support - and the filing allows debtors to catch up on these payments.

According to the U.S. Courts website, debtors who choose to file Chapter 13 provide protection to cosigners on their debts. "Chapter 13 has a special provision that protects third parties who are liable with the debtor on 'consumer debts.' This provision may protect co-signers," the website states.

People who have a large amount of unsecured debt, such as credit card balances and medical bills, are able to pay it back at a significantly reduced percentage. Once the repayment plan is concluded, any remaining unsecured debt is discharged by the bankruptcy court.

Another major reason why debtors turn to Chapter 13 is that they may not be eligibile to file Chapter 7, either because they earn too much money or may have been previously involved in a Chapter 7 case. To receive a discharge of debts under Chapter 13 requires that debtors wait only four years after a Chapter 7 case, rather than the eight years they would have to wait to file another Chapter 7 case.

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