Even if you recently received a Chapter 7 discharge, filing for Chapter 13 bankruptcy can help you pay off your nondischargeable debts and catch up on your missed mortgage or car loan payments. Read on to learn more about whether filing a Chapter 13 bankruptcy after a Chapter 7 may be the right choice for you.
For more information, see our Bankruptcy: Should I File? topic.
Chapter 7 bankruptcy is designed to wipe out your general unsecured debts such as credit cards and medical bills. But certain types of debt are not dischargeable in Chapter 7 bankruptcy. In addition, Chapter 7 does not allow debtors a way to catch up on their mortgage or car loan arrears to avoid foreclosure or repossession.
If you file a Chapter 13 bankruptcy shortly after receiving a Chapter 7 discharge, you will not be entitled to another discharge. (To learn more, see Can You File for Bankruptcy Twice?). But doing so can help you reorganize and pay off the debts that were not wiped out by the Chapter 7. This is commonly referred to as a “Chapter 20” bankruptcy.
For more information, see What Is a “Chapter 20” Bankruptcy?
The following are some of the most important reasons you may want to file for Chapter 13 bankruptcy after a Chapter 7 discharge.
Your mortgage and car loan are debts that are secured by your property. This means that if you default on the loan, the lender can foreclose on your house or repossess your car. A Chapter 7 discharge only eliminates your personal liability for these debts. It does not get rid of the lender’s security interest (lien).
If you stop making your payments, your lender has the right to take back the property even after your Chapter 7 discharge. If you are facing foreclosure or repossession, filing for Chapter 13 bankruptcy can help you save your home or vehicle by allowing you to catch up on missed payments through a repayment plan.
To learn more, see What Happens to Secured Debt in Chapter 13 Bankruptcy?
Recently incurred tax obligations are typically considered priority debts in bankruptcy. As a result, they are not dischargeable in a Chapter 7 case. However, if you file for Chapter 13 bankruptcy, you can pay them off through your repayment plan while enjoying the benefit of the automatic stay.
Domestic support obligations such as alimony and child support are also priority debts that cannot be discharged in bankruptcy. However, if you are behind on your payments, you can get caught up on these obligations through your Chapter 13 plan.