Chapter 13, in some circumstances, can offer significant advantages over Chapter 7. The main advantages are:
- More debts are dischargeable in Chapter 13 than in Chapter 7
- Non-dischargeable back taxes and child support can be repaid throughout the case without interference from the creditors, and usually without further interest and penalties once the bankruptcy petition is filed;
- A debtor can keep property in a Chapter 13 which might be lost to the trustee in Chapter 7;
- Secured debts in Chapter 13 are generally reduced to the value of the property involved. For example, if a debtor has a vehicle worth $6,000, but owes $8,000 against it, the secured debt is reduced to $6,000–the value of the vehicle. (For obvious reasons, this is referred to in legal jargon as a “cram down”.) Interest rates on secured debts are generally reduced to 9%.
- A debtor can prevent auto repossessions and home foreclosures, and (in the case of a home foreclosure) repay the delinquency over a period of time.
