Posted on: 21 July 2023Share
Homeowners who need the financial relief of bankruptcy often have one major concern on their minds: saving their home.
In general, the best way to do this is to opt for Chapter 13, or wage earner's bankruptcy. Unlike liquidation bankruptcy, Chapter 13 lets you get current on past due payments, reaffirm your loan, and pay off debt over a period of time.
How long should that period of time be, though? Can a five year payment plan do more to protect your home than a three year plan? The answer may be yes. Here's why.
1. The Bankruptcy Stay Stays
All chapters of bankruptcy come with the automatic, temporary stay against collections. This stay means lenders and creditors cannot sue you in court, harass you on the phone, send letters, visit you or your workplace, obtain liens, or garnish wages.
The longer you keep this protection in place, the longer you have to get your overall finances and life in order. So, while you might end up paying more in the long run, you also get breathing room to develop a more stable plan.
2. You Can Save More Assets
Based on your payment plan, do you have to choose between keeping the car you need to get to work or your home? If so, a longer payment period can solve your dilemma. By getting your payments a bit lower, you may discover that you can actually afford to save both.
3. You Pay Back More Debt
Some Chapter 13 filers are required to choose a five year repayment plan due to higher income. The reason is that they will pay back more of their unsecured debt through a longer payment period, even with smaller monthly payments.
You can use this to your advantage, though, if you need to pay off a larger amount of arrears or more fees to keep your home.
Paying back more to creditors also helps ensure that you can choose Chapter 13 to begin with. Courts stipulate that borrowers who have the option to choose either liquidation or repayment plans must pay to creditors at least the same amount. So if you accept paying more through a longer plan, your case has a better chance of being approved.
Where Can You Learn More?
Can a longer payment period give you more stability as a homeowner? Or should you opt for a three year plan anyway? Find out by meeting with an experienced bankruptcy attorney in your state today.