Chapter 13 Bankruptcy may be a good fit for you if you have a regular income, but you cannot afford to pay your monthly bills. Chapter 13 is commonly seen as an alternative to Chapter 7, and is sometimes more attractive. The reason Chapter 13 may be more attractive is that you commonly are able to keep your home, your car, and your other possessions. This type of bankruptcy is often more complicated and confusing than a Chapter 7, so if you are considering it, speak to a local attorney to help guide you through the process.
Chapter 13 Bankruptcy is the second-most common form of personal bankruptcy in America, behind Chapter 7 Bankruptcy. Chapter 13 bankruptcy typically allows a debtor to negotiate a payment plan with their lenders which allows them to pay off their debts and keep their possessions. Rather than discharge all of your debts, the goal of a chapter 13 is to restructure your payments so that you can afford the monthly bill and eventually pay off your lenders.
When you enter into a Chapter 13, your attorney will negotiate new payment plans on your debts on your behalf. You will be left with lower monthly bills, and you may be able to have some debt or late payments excused. The result is that you’ll have a monthly payment plan that you can afford, and that will eventually lead to you paying off your debts and being back on your feet financially.
However, it is important for you to keep up with the new payment plan and see your Chapter 13 through to the end. If you do not, you may end up having to file again for a Chapter 7 bankruptcy. Be realistic when considering a Chapter 13, and try to come to a payment plan that you are confident you can keep.
So you still have to pay off your debts, you still have to go through a bankruptcy filing, and you keep your debt until you pay it off (typically taking several years). So why would you decide to file Chapter 13 bankruptcy instead of Chapter 7? As mentioned briefly above – the main reason is that you get to keep you possessions. If you own your own home, one or more cars, or any other items of significant value, keeping those possession can be a big deal. Using Chapter 13 to restructure your debt can help you better maintain your current quality of life while also eliminating your debt over time.
You will also enjoy a smaller impact to your credit score by filing Chapter 13 bankruptcy. Obviously you should be very cautious about taking on any new debt while you’re paying off your loans through Chapter 13 bankruptcy, but after you’ve cleared your existing debts, your credit report will reflect years of regular payments with successful resolutions to those loans. This looks a lot better to a future lender than liquidating your debts through a Chapter 7. If you expect to use large loans in the future (perhaps to buy a home or a new car), this should be something you think about.
And finally, using Chapter 13 means you will be able to repay your lenders. There is something to be said for being able to take responsibility for your loans and repay what you owe. The Bankruptcy laws in this country are designed to help Americans get a fresh start when they cannot afford their debts, and have no prospect of being able to pay them off. If you have the ability to do so through a Chapter 13, you may feel a well-earned sense of pride for paying off the debts you carry.