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A Quick Guide To Chapter 13 Bankruptcy

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Filing for bankruptcy is a big deal, as you already know. On the one hand, it may be the only option you have. On the other, the consequences of bankruptcy can last for years upon years.

Luckily, filing for Chapter 13 bankruptcy instead of Chapter 7 can help mitigate these consequences. Here’s what you should know about Chapter 13 bankruptcy:

  • In a Chapter 13 bankruptcy case, debtors do not have their outstanding debts liquidated in court. Instead, the court will help the debtor form a repayment plan for outstanding debts.
  • To qualify for Chapter 13 bankruptcy, you must be able to pay off a sizeable portion of your debts within a reasonable repayment period. You likely won’t have the funds to pay off all of your debts (because then you wouldn’t have to file for bankruptcy in the first place) but if you’ve been employed for a while and plan on staying employed in the future, you’ll be able to make future payments. Debtors must also have outstanding debts below a certain amount and fall under a certain income level in order to qualify.
  • Chapter 13 is not a “quick fix” like many people describe Chapter 7 bankruptcy to be. With Chapter 13, the repayment plan usually lasts anywhere from three to five years. The actual time period, and the actual monetary amount you pay back, depends on your priority debts, secured debts, and unsecured debts.
  • Priority debts under Chapter 13 are the same as under Chapter 7. Even when you file for bankruptcy, you still have to pay these debts in full. Priority debts include child support payments, alimony payments, taxes, and sometimes student loan payments.
  • Secured debts, such as mortgage payments and car payments, will also have to be paid in full under Chapter 13. Instead of giving up your personal assets and property to the court to pay off these debts — as would happen in Chapter 7 — you’re given a timeline to make payments in full.
  • Unsecured debts will include costs like credit card bills, and these may or may not be paid back in full under Chapter 13. Debtors do not have to prove that they’re able to pay these debts within the given period, only that they’rewilling to pay off these debts whenever possible during the given period. If there are still outstanding debts once the payment period has ended, they’ll be wiped clean.
  • One of the best benefits of filing for Chapter 13 is the preservation of personal property. In other words, you get to keep your personal property. Chapter 13 also allows debtors to build up their credit score, even if only a little bit at a time.

If you are struggling to find stable ground, remember that you certainly aren’t alone. Fewer than one in four Americans has enough saved to cover at least months of expenses in case of emergency, and the remaining three in four Americans is living paycheck-to-paycheck. If you’re one of the 1.5 million people who will file a bankruptcy case in the U.S. this year, it’s important to remember that you can — and will — get through it.