What are the Benefits of a Chapter 13 Bankruptcy?

Chapter 13 bankruptcy allows the debtor to pay some or all of the debts. The debts can be paid over a period of three to five years as per a court-approved repayment plan.

The decision to file a Chapter 13 Bankruptcy should be weighed carefully. You should consider the benefits before making a move. Here are five benefits of this debt relief option that you should consider to make an informed decision.

1. Flexible Payment Terms

The trustees of chapter 13 bankruptcy are usually flexible about payment terms. You may be allowed to reduce debt payments, extend the payment period, or give up an asset that you are making payments on.

When you file a chapter 13 bankruptcy, you may also consolidate some debts. The debts can be reorganized into one affordable payment that you can pay in up to five years.

2.  Bankruptcy Shown on Credit Report

An advantage of chapter 13 bankruptcy over chapter 7 bankruptcy is that it’s shown on the credit report for a lesser period.

With chapter 7 bankruptcy, bankruptcy is shown in the credit report for 10 years. On the other hand, it’s shown for just 7 years in the chapter 13 bankruptcy. As a result, creditors will know about the bankruptcy for a longer period if you file chapter 7 bankruptcy as opposed to a chapter 13 bankruptcy. This is important since the report is viewed by house loan, vehicle loan, and credit card companies.

3. Save Your Property

Another benefit of a chapter 13 bankruptcy is that you may be able to save your home if you file before the foreclosure date. The mortgage payments due known as arrearages can be paid back over a period of three to five years.

In addition, if you have a second or higher mortgage, you may only have to pay the first mortgage through a process known as ‘lien stripping’.  To become eligible for this option, the home value must be equal to or lower than the amount owed on the first mortgage when the bankruptcy was filed.

4. Lower Payments

In some cases, chapter 13 bankruptcy will reduce the balance owned. In this way, you can continue to make payments for your personal loans such as a car loan. It will prevent repossession of your asset and you can catch up on the loan payments.

5. Reduce Tax Amount

Your taxes can be paid through a chapter 13 payment plan. The IRS will not hound you to make payment in full, and accept the amount is agreed by the bankruptcy court.

Eligibility for Chapter 13

Only individuals can file for chapter 13 bankruptcy. Businesses are not allowed to file for this repayment plan. However, sole owners and partners can file for the relief option individually.

To be eligible for the chapter 13 bankruptcy, you must have enough income to repay the debts as per a court-approved repayment plan. In addition, unsecured debts must be less than $394,725 to be eligible for chapter 13. For more information about the other benefits and also the eligibility criteria, you should contact a professional bankruptcy law attorney.


Attorney Eli Tamkin is a Cleveland bankruptcy lawyer.  He has been practicing law since 1989 and in Cleveland Ohio since 1994. Since then, he has dealt with a variety of legal issues, including bankruptcy, real estate, divorce, personal injury, and probate. Many times, answering questions on bankruptcy draws on knowledge of other legal areas as well. His experience in these other areas, as well as in bankruptcy enables him to address your particular needs and to offer you advice that is applicable to your situation.

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