If you are struggling with debt and want to avoid foreclosure or liquidation of your assets, you may consider filing for Chapter 13 bankruptcy. Chapter 13 bankruptcy, the wage earner’s plan, requires you to have a regular income and pay a portion of your debt back to your creditors over time.
But, what is Chapter 13 bankruptcy, and how does it work?
What is Chapter 13 bankruptcy?
Chapter 13 bankruptcy is a type of bankruptcy that allows you to reorganize your debt and repay it over 3 to 5 years, depending on your income and expenses. Unlike Chapter 7 bankruptcy, which wipes out most unsecured debt, Chapter 13 lets you keep your property and assets, as long as you make the agreed-upon payments.
Chapter 13 bankruptcy can also help you deal with some types of debt that are not dischargeable in Chapter 7 bankruptcy, such as state and federal taxes, child support, alimony, student loans and secured debt. By filing for Chapter 13 bankruptcy, you can stop interest and penalties from accruing on your tax debt, and you can pay it off over time through your repayment plan.
You can also modify the terms of your secured debt, such as your mortgage or car loan, and avoid foreclosure or repossession.
How does Chapter 13 bankruptcy work?
To file for Chapter 13 bankruptcy, you need to meet certain eligibility requirements, such as having a regular income that is sufficient to cover your living expenses and monthly payments to your creditors. You also need to have less than $419,275 in unsecured debt (such as credit cards, medical bills or personal loans) and less than $1,257,850 in secured debt (such as mortgages or car loans).
Why would someone file for Chapter 13 bankruptcy?
There are several reasons why someone would choose to file for Chapter 13 bankruptcy instead of Chapter 7 bankruptcy. One reason is that you want to keep your property and assets that would otherwise be sold or taken by creditors in Chapter 7 bankruptcy. Another reason is that you have non-dischargeable debt that you want to pay off over time through a manageable repayment plan.
If you have secured debt that you want to modify or catch up on through a repayment plan, Chapter 13 bankruptcy may be the right choice for you. The same is true if you have co-signers or co-debtors who would be liable for your debt if you filed for Chapter 7 bankruptcy.
