Top reasons to file Chapter 13 instead of chapter 7
If you have a high interest rate on your automobile or automobiles, you can file a chapter 13 and convert the interest rate to 4.75%, saving thousands of dollars of interest and lowering your payment in many cases.
Paying for your car in chapter 13 provides you with an option, if the car develops a serious and expensive problem, to convert your chapter 13 to a chapter 7 and surrender the car to the creditor. Then, you can go out and purchase another car. But remember, you can buy a car in chapter 13 (although many people think you cannot – you really can) if you need to.
Chapter 13 permits you to pay as little as 1% of the debt owed to unsecured creditors, which is almost as good as paying the 0% payout of chapter 7. So, filing a chapter 13 does NOT mean that you are really paying anything (much) to the unsecured creditors. This is contrary to what most people think. Most folks (mistakenly) think that they have to pay back ALL their debt if they file chapter 13. WRONG!
When you file a chapter 13, if your income goes down, it is sometimes possible to lower your chapter 13 payment.
You can pay back priority taxes in a chapter 13 at 0% interest. In most cases, this means that you can actually save money when you owe taxes by paying them in chapter 13. The IRS charges you interest, just like on a credit card, if you pay back past-due taxes in their payment plan.
In chapter 13, your obligation to pay on your student loan debt is temporarily suspended because the chapter 13 causes your student loans to go into administrative forbearance. While the interest continues to accrue, your obligation to pay to student loans separate from your plan payment is suspended.
Chapter 13 provides you with a way to save your home, if you are behind, and take up to five years to catch up the missed payments. Mortgage companies rarely give you more than one year – which is impossible to do for most folks. If you file chapter 7 and you’re behind on your mortgage, the mortgage company can quickly file a relief from stay motion and continue to pursue foreclosure.
You can often lower car payments, and oftentimes a strip off negative equity from your car, provided that you purchased the car more than approximately 2 1/2 years prior to filing the chapter 13.
In chapter 13 means test calculations, you are able to deduct the amount you pay back for retirement plan loans any contributions that you make to your retirement plan. You cannot take these deductions in a chapter 7.
You can dismiss a chapter 13 at any time, voluntarily. When you file chapter 7, however, you are locked in. If you later decide that it was a mistake, too bad.
You can file a chapter 13 and get a discharge after only four years from a prior chapter 7. However, chapter 7 to chapter 7 is an eight year waiting period.