Filing bankruptcy can be an emotional option. But it can also be a choice that frees you from significant debt and helps you move on to a less anxious and more comfortable life. Chapter 13 bankruptcy is one of the most common types of bankruptcy and can free you of crippling debt.
But before you decide on filing this type of bankruptcy, it’s critical that you understand what it involves, as well as explore your option for an attorney to help guide you through the process. I receive many questions about Chapter 13 bankruptcy, and want to answer some of the most common questions I get. Read on for a high-level view.
Question #1: What is Chapter 13 bankruptcy?
Also known as the wage earner’s plan, Chapter 13 allows those with regular income to craft a plan to repay part or all of their debts. Debtors’ plans must include information on making equal installments to creditors between three and five years to ensure they meet the required amount. However, if the debtor’s total monthly income is less than their respective state’s median monthly income, the debt must be paid in three years unless the court determines a longer period is acceptable.
For those whose monthly incomes exceed the monthly median, the debt must be paid over five years. However, no debt payments can extend beyond the five-year payment period. During the repayment period, creditors are prohibited by law from beginning or continuing any collection efforts.
Question #2: Why file Chapter 13 instead of Chapter 7?
While Chapter 7 can be beneficial in many instances, Chapter 13 provides advantages unavailable from Chapter 7 filing. The biggest benefit is that it provides debtors the chance to prevent their homes from being foreclosed. It also may prevent foreclosure proceedings and remedy any delinquent mortgage payments within the three- to five-year repayment time period, adding an additional level of breathing room for the individual.
Those who file this type of bankruptcy are given the chance to reschedule any secured debts and are allowed to repay them throughout the three- to five-year repayment plan. An added benefit is that this may enable them to make lower payments than they would without filing this type of bankruptcy.
Those who are liable with the debtor on any outstanding consumer debts are also protected, such as third-party individuals such as co-signers. In all, Chapter 13 plays out similarly to a consolidation loan where the debtor’s plan outlines the payments to a trustee. This trustee is responsible for distributing payments to creditors. Keep in mind that individuals who file this type of bankruptcy shall not have any direct contact with creditors during this time.
Questions #3: Can you provide guidance?
Absolutely. I understand that navigating the complexities of bankruptcy filing can be a daunting and anxiety-inducing task. I’ve helped many Michiganders understand their bankruptcy options, helping them follow a plan that gives them a clearer path to repay their debts in a manner that helps them maintain their peace of mind instead of drowning in debt. Reach out today to learn more about how I can help you.