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There are advantages to filing for Chapter 13 bankruptcy


Deciding whether to file for Chapter 7 bankruptcy or Chapter 13 bankruptcy takes careful thought. After all, there are advantages and disadvantages to each type of filing. Debtors in Kentucky need to carefully asses their financial situation to determine what choice is the most appropriate for them. With this in mind, let's take a moment to look at the advantages of filing for Chapter 13 bankruptcy.

In a Chapter 13 bankruptcy, a debtor with a regular income creates a three or five-year repayment plan where he or she will pay off his or her debts in installments. Throughout the course of the plan, the debtor's creditors are not allowed to begin or continue to collect on the debtor's debts. In this way, the debtor can catch up on his or her debts without fear of creditor harassment.

Chapter 7 bankruptcy, on the other hand, is referred to as a liquidation bankruptcy. This means that, minus certain exclusions, a debtor's assets will be sold off and the proceeds will be used to pay the debtor's creditors. Therefore, it is possible that in a Chapter 7 bankruptcy, a debtor may lose his or her home.

In a Chapter 13 bankruptcy, a debtor may be able to keep his or her home. This is because a Chapter 13 bankruptcy filing halts the foreclosure process and may allow the debtor to take care of his or her mortgage arrears over a certain period of time. That being said, the debtor is still obligated to continue making his or her ongoing mortgage payments.

A Chapter 13 bankruptcy also gives the debtor the opportunity to reschedule his or her secured debts, spreading them out over the length of the Chapter 13 repayment plan. By doing so, the payments on these debts may be reduced, which is another advantage.

Finally, a Chapter 13 bankruptcy filing is similar to a debt consolidation loan. The debtor's payments under the Chapter 13 repayment plan are made to a trustee. The trustee then takes care of distributing the funds to the debtor's creditors. Therefore, the debtor need not have any personal interaction with his or her creditors.

As this shows, there are advantages to filing for Chapter 13 bankruptcy. However, debtors who are considering filing for bankruptcy may want to first consult an attorney, to better understand the advantages and disadvantages for each type of filing in his or her specific situation.

Source: uscourts.gov, "Chapter 13 - Bankruptcy Basics," Accessed Oct. 30, 2016

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