Flowing in debt so vast the house is about to wash away? Keeping a foreclosure at bay is crucial. Chapter 13 Bankruptcy Code was designed with the intent to help regular income individuals coordinate a plan to repay all or part of the debt without losing homes to foreclosure.
Under this Chapter, debtors request a repayment plan to make installments to creditors over the sum of three to five years. To do so, the case begins by filing a petition with the bankruptcy court for the area where the debtor holds their residence. Payments to the Trustee must begin as soon as it is submitted, even if the plan hasn’t been approved. These payments are then distributed by the Trustee to unsecured creditors, past due taxes, child support, and past due home mortgage amounts. The amount of the payment is determined by the types of debt and how much is owed on each, the debtor’s personal income and their necessary expenses.
There is no doubt that declaring bankruptcy is a difficult decision, as there are a number of advantages and disadvantages to doing so. Simply put, for every one advantage there is an equal disadvantage. For instance, even though it can take up to five years to repay the debts under a Chapter 13 bankruptcy plan, there is more time to make the payments and Trustees may be flexible on the terms of those payments. Once the repayment plan is completed under this Chapter, individual creditors cannot make the payment be paid in full. Also the debts paid within Chapter 13 are paid out of “disposable” income, which is any income left over after necessities (such as, food, housing, medical care). This makes any extra cash untouchable until the repayment plan is completed.
Declaring bankruptcy will ruin credit. The difference between declaring and not declaring based solely on protecting credit however, is that it can stay on a credit report for up to ten years. It is often easier to explain a bankruptcy to a future lender than it would be to explain missed debt payments, defaults, repossessions, and lawsuits. Along with credit, all open credit cards will be lost. This is not necessarily a bad thing since the credit cards are probably at the head of the mess anyway. Nonetheless, it is possible to apply for new lines of credit within one to three years of filing bankruptcy, although at a much higher interest rate. This is typically done to begin re-establishing credit. Applying should be done with caution as history can repeat itself. Filing for this bankruptcy is unlimited, yet each filing will appear on the credit report.
In summary, the key advantage to Chapter 13 bankruptcy is consumers can repay some of what they owe by reorganizing and paying portions of those outstanding debts to the creditors, all while still holding onto their assets. Once a repayment plan is complete, all other debts that are eligible for discharge during bankruptcy will be cleared away.