Here’s What You Need To Know About Filing For Chapter 13 Bankruptcy

Often times when we think of bankruptcy we imagine a person repossessing all of their assets. However, this is only in the form of Chapter 7 bankruptcy. This article will cover Chapter 13 bankruptcy, which allows you to keep your assets and pay off your debts through a repayment plan. Read on to learn more about how Chapter 13 works.

You will create the repayment plan

The hallmark of Chapter 13 bankruptcy is the repayment plan. In this case, rather than liquidating your assets, the court gives you the option of paying off some of your debts through a repayment plan. Here is an overview of how it works:

As part of the bankruptcy stipulations, you will need to attend credit counseling. During your counseling sessions, you will work with your counselor to create a repayment plan that is achievable with the amount of disposable income you have available.

Since most plans say you will pay less than the total amount you owe, the court must confirm that the plan is acceptable. Your creditors also have the option to oppose the plan. If the plan is found to be unacceptable, you must modify it accordingly.

Once the plan is accepted by the court, you will be responsible for making the payments to a trustee, who will then distribute these payments to your creditors on your behalf.

You will (probably) be able to keep your house

One of the main advantages of Chapter 13 bankruptcy over Chapter 7 is that you will likely be able to keep your assets, especially your home. However, the big caveat about this is that you need to stay up to date on your mortgage payments in addition to making your repayment plan payments.

The reality is that Chapter 13 bankruptcy only puts a temporary stay on foreclosure proceedings. This stay is effective as long as you continue to comply with all the requirements of the plan. If you miss a mortgage payment or stop making payments for your repayment plan, the suspension is lifted and your creditors are entitled to collect your debts.

There are 3 types of debt you can pay off

You have already read above that you will probably be allowed to pay less than the total amount you owe. However, not all debts are equal and not all debts can be canceled. There are three types of debts that are considered in bankruptcy and they are as follows:

Priority debt: Any senior debts you have must be paid in full. These include debts that cannot be canceled, such as taxes, child support, or student loans.

Guaranteed debt: Secured debts are things like your mortgage or a car loan, anything that can be used as collateral. Again, if you want to keep these items, you will need to keep track of ongoing payments, and your repayment plan will likely cover any missed payments as well.

Unsecured debt: Unsecured debt usually consists of items such as credit card debt or medical bills. While you probably have to pay some, this type of debt is the most flexible and some can be forgiven. In this case, it’s up to the court to decide how much you can afford to pay.

The process lasts 3 to 5 years

Another thing that sets Chapter 13 bankruptcy apart from Chapter 7 is that the process takes a lot longer. While Chapter 7 typically takes around six months, you can expect to be on your Chapter 13 repayment plan for 3-5 years. That said, you can ask the court to pay you off sooner if you are able to pay off your debts sooner.

The effects of bankruptcy, however, will only stay on your credit report for seven years, as opposed to the ten years faced by those who apply for Chapter 7.

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