Chapter 13 Worth

Is Chapter 13 Worth It?

Chapter 13 is one of the most powerful tools to protect your home.  When it comes to protecting your home from debt, there are three ways Chapter 13 can help.

First, Chapter 13 can protect your home from the mortgage company.  If you’re behind on payments, whether you’re facing foreclosure or not, Chapter 13 can stop the mortgage creditor from moving forward with plans to foreclose and give you an opportunity to catch up the payments that are behind.

Second, Chapter 13 can protect your house from other creditors.  If you own a home and are sued by a creditor, such as a credit card or medical debt, the resulting judgment will act as a lien against your house, and it will accrue interest over time.  Because the lien will have to be paid at closing if/when you sell your house, any debts that sue you will eat up any equity that you’re building in your home.  Although rare, there’s even a procedure under Georgia law to foreclose on a judgment lien–meaning a credit card, medical debt, or loan could sue you and end up taking your house.  Filing a Chapter 7 or Chapter 13 will allow you to discharge some or all of the debt and protect the value you’re building in your home.

Finally, although Chapter 7 can also protect your home from unsecured creditors, the trade-off to filing a Chapter 7 is that if you have too much equity in your house, the Trustee in a Chapter 7 can sell your house and use some of the money to pay debt.  Chapter 13 is a great alternative and can give you the relief of discharging debt while also protecting the value in your home.  Unlike Chapter 7, the equity that you have in your home or other assets is completely protected from creditors–or the trustee–trying to sell your house.  

For clients who have equity in their homes, filing Chapter 7 can be a risky plan.  For many clients, especially in a time where property values are shooting up, I advise filing a Chapter 13 to get relief from debt while also protecting the equity they have stored up in their home.  

If you own a home and think it may be worth more than what’s owed on it, and you also have other debts (car payments, credit cards, medical bills)–you may be a perfect candidate for a Chapter 13 and be able to wipe out debts but also protect your home.  If you call my office and tell them that you want to protect your home from creditors, we’ll get you talking to one of our attorneys immediately to discuss what options are best for you.