Chapter 13 Personal Bankruptcy

Chapter 13 Personal Bankruptcy

A chapter 13 bankruptcy isn’t really a bankruptcy at all. Instead it’s an extended payment plan that allows you several years to catch up on your payments. After up to five years of financial hardship you emerge with all your assets in tact. You keep everything.

Chapter 13 can be useful for some people. Say you went out and purchased a really nice house, a fancy car and some other goodies like a large-screen TV. Now you can’t afford to cover the huge payments. Under chapter 13 you can extend the original terms of payment on everything and even reduce the amount owed on some of your debts. You get a chance to pay everything off over a longer period of time. Think of it as a new extended payment plan.

Under the new laws, a very well off couple could use a chapter 13 bankruptcy to reduce their payments by stretching out the payment terms thus making their new, more comfortable standard of living much more affordable. And if done correctly, the monthly payments may be more affordable and less punishing than you might think. In order to qualify for a chapter 13 filing, you’ll have to have enough income to pay off more than half of your debts within the next five years. The negative here is that chapter 13 still damages your credit rating.

While the chapter 7 bankruptcy will wipe out your debts once and for all, a chapter 13 bankruptcy can, if you’re lucky, also be used to shed unsecured debts. Some courts will allow a chapter 13 repayment plan that provides little or nothing for unsecured debts like credit cards, while some other courts will reject any repayment plan that doesn’t cover unsecured debts at least 70%.

Ask your lawyer about the attitude of your local court. Chances are you’ll be able to eliminate some of your credit card debt and with a little luck quite a bit more. Also, any unpaid balance that remains when your payment plan is complete may be discharged by the court.

If your situation changes during your chapter 13 repayment period, the court can, at their discretion, discharge some debts on the basis of hardship to help you get back on track. Keep in mind one statistic, only around one third of those who go into a chapter 13 plan, complete it on schedule. Many go onto file for chapter 7 relief when the plan proves too demanding. This is an option you may need to explore with your attorney.

If some of your debts were made with a cosigner, you can include those debts in your chapter 13 repayment plan as your cosigner won’t be pestered by the creditor(s).

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