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Chapter 13’s defining characteristic is that it allows you to enjoy the court’s protection for five years.
During those five years, no one can sue you, garnish you, foreclose on you, repo your car, nothing. You use that time to get caught up on mortgage arrears, pay off taxes, or reorganize your debt generally though a court-approved plan.
Chapter 13 is traditionally used to stop foreclosure or pay off taxes, but there are many other uses, too. Unlike Chapter 7, Chapter 13 is not a “liquidation” case, so there is no chance of the Trustee taking your house. Chapter 13 also offers an alternative for people whose incomes disqualify them from Chapter 7.
What’s more, Chapter 13 offers many tools that are not available in Chapter 7 cases. If you’re under water on your home, you can “strip” second mortgages and HOA liens. Or if you owe more on your car than it’s worth, you can do a “cram down” and just pay the value. As to student loans, you can choose either to enjoy a 5-year deferment or, if you’re working toward a 25-year IDR goal, keep making your regular payments. And even if your income and/or assets require you to pay 100% of your unsecured debts, interest and penalties on those debts freeze at the time of filing.
The foregoing is intended for general informational purposes only and does not constitute legal advice.