If you are an individual seeking debt relief through bankruptcy, you may either file under Chapter 7 or Chapter 13. Each has its own advantages and disadvantages. However, Chapter 13 bankruptcy can offer some specific benefits that Chapter 7 does not.
Chapter 7 is probably what most people associate with bankruptcy. It is a liquidation plan that involves selling off assets, except for those that are exempt, to pay off debts. Chapter 13 is different in that it involves reorganizing your debts and paying them off over a repayment period of three to five years. It works similarly to a consolidation loan in that you make one payment per month to your bankruptcy trustee, who then distributes the payment among your debtors.
Unavoidably, filing for bankruptcy will affect your credit report. However, the effect of a Chapter 13 bankruptcy on a credit report is less than that of a Chapter 7 bankruptcy. The latter remains for 10 years, while the former remains on the report for only seven years.
You may have taken out a loan with someone else acting as a co-signer. The person who helped you borrow the money by co-signing is now liable for your consumer debt. Chapter 13 bankruptcy can protect your co-signer(s).
Both Chapter 7 and Chapter 13 bankruptcy provide short-term protection from foreclosure on your home or repossession of your vehicle due to the temporary stay that goes into effect when you file. However, Chapter 13 allows you to make up for missed payments as part of the reorganization of your debt. Chapter 7 is less forgiving in this regard.
Chapter 13 bankruptcy has its advantages. However, you must meet its eligibility requirements before you can file. There are limits to how much unsecured and secured debt you can owe and still file for Chapter 13.