Nowadays, everywhere you turn you hear about someone filing bankruptcy. When most people think of the word bankruptcy, they are thinking of chapter 7 or liquidation. Chapter 7 bankruptcy is probably the most common type filed, when it comes to personal bankruptcy. The reason everyone looks to Chapter 7 for debt relief is because of the discharge without any repayment plan. The second biggest benefit of chapter 7 bankruptcy is the automatic stay. When an individual is filing for bankruptcy the automatic stay is put in place stopping all contact from creditors. This means they can no longer call and harass the debtors to try and get a payment. This is pretty powerful when you consider the relief a debtor feels when they are no longer being constantly degraded by their creditors.
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Another chapter of bankruptcy that most people shy away from is Chapter 13. Most people don't realize it but Chapter 13 bankruptcy has just as many benefits as Chapter 7, if not more. But Chapter 13 also shares the benefit of the automatic stay just as in a Chapter 7 bankruptcy. Where a Chapter 13 bankruptcy really shines is in the area of protecting property. You can't turn on the news today without hearing some snippet about foreclosure because of the downward spiraling real estate market. This is one area an individual can use this type of bankruptcy filing to protect their property. One thing to remember is people filing Chapter 13 need to be employed or have a substantial income.
Usually, the bankruptcy attorney will direct their client into this chapter of filing after reviewing their financial situation. When filing a Chapter 13 bankruptcy the individual will have to create a feasible repayment plan that will last 3 to 5 years. Considering this, the debtor will have to have a stable form of employment to be able to keep it up. If for some reason, the debtor can no longer continue making the payments, they can contact their bankruptcy attorney to either reduce the amount of payment or if the situation looks permanent, convert the bankruptcy to a Chapter 7. Having this flexibility is another secret benefit of Chapter 13.
A Chapter 13 bankruptcy has an array of benefits. When discussing your options with your bankruptcy attorney, they might mention the term "cramdown". With the economy in the tank most creditors don't want property back. So this is what the bankruptcy attorney is referring to. In a Chapter 13 bankruptcy, a debtor can try and modify the rights of the holders of unsecured claims. This means the debtor, with the help of their bankruptcy attorney, can negotiate to change the terms of the contract between the debtor and creditor. This is seen typically in automobile loans and mortgages. In today's rough economy the value of the property in many cases is lower than what is owed on it. Negotiating a cramdown would be to get the lender to lower the amount of the loan and have the debtor agree to continue paying on the reduced amount. This will benefit the debtor and creditor in most cases.
Another form of cramming is seen in today's real estate market. Many families have taken out a first, second and third trust deed on their home. What we're seeing in today's down real estate market is the value in many cases is less than the first mortgage. The bankruptcy attorney will ask to make the second and third unsecured claims. In a Chapter 13 bankruptcy, debts are paid by priority, with legal bills and secured claims first and all unsecured debts getting the remainder of the crumbs left over. In many chapter 13 cases, the unsecured debts get discharged at the end of the payment plan, because there's not enough money to spread around in the debtor is keeping their secured property.
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