What Exactly Is Chapter 13 Bankruptcy?
Debtors who file for bankruptcy under Chapter 13 of the US Bankruptcy Code do so because their goal is to have the opportunity to pay off their debts with terms that work to their advantage (for example, lower interest rates), and to keep the debts in their own name. The main difference between Chapter 13 and Chapter 7 is that while Chapter 7 involves the liquidation of property and assets, the Chapter 13 process is all about restructuring debt. This allows the debtor to use future income to pay off creditors, which makes filing for Chapter 13 Bankruptcy a more attractive option for someone with a steady flow of income. It's important to note that the US Bankruptcy Code provides for a maximum of five years to pay off the debt to creditors (under Chapter 13 regulations).
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How does it all work?
Under Chapter 13, debtors are allowed to retain all their property, and the courts provide an interest-free plan for paying back the debts. The details of how all transactions and payments will be made are put into writing, and repayment generally starts 30 to 45 days after the case is opened. Creditors are explicitly prohibited to collect any claims from the debtor, and must instead adhere solely to the repayment plan signed off on by the courts.
One significant advantage of Chapter 13 versus Chapter 7 Bankruptcy is that Chapter 13 comes with a full discharge option, which is non-applicable under Chapter 7. Full Discharge means that if the debtor completes all required payments in the plan, then the plan is discharged and the debtor is officially financially restored. Furthermore, a Chapter 13 filing can be approved by the courts even if the creditors disagree with the terms, which is a provision that Chapter 7 can't provide.
I think Chapter 13 Bankruptcy is right for me. Now what?
Before deciding on Chapter 13, you want to make sure that you still receive regular income. This will be the major determining factor in letting you file for Chapter 13 instead of Chapter 7. There may be other factors to consider, which is why it's best to begin your process by consulting a Bankruptcy Attorney, who can best advise you on options and the best course of action to take.
Once you and your attorney come to an agreement that Chapter 13 is right for you and your finances, here's a brief outline of the steps you can expect to take:
- Set your budget - what you can afford to pay back and how often, based on the income you're receiving
- Determine the best methods of dealing with your individual creditors
- Create a Chapter 13 plan, and fill out all the necessary paperwork
- Pay the filing costs and complete all remaining pleadings and forms
- Be prepared to meet with creditors and attend court hearings to discuss your progress
- Once all your payments have been made, obtain an official Plan Discharge
- Enjoy regaining your financial independence!
Though Chapter 13 provides a preferred alternative to filing for Chapter 7, recognize that any activity related to filing for bankruptcy is going to be an involved process. But that's what Bankruptcy Attorney's are for - to help you along the way, make sure you make the best decisions for you and your family, and ensure that at the end of the process, you've regained your financial independence.
For a review of debt relief options and alternatives to bankruptcy, get a free debt relief analysis and free savings estimate. Simply answer a few questions online.