People go to other options such as bankruptcy to help them resolve their debts when the debt has become overwhelming. It is not usually advisable to consider bankruptcy as the first option when you want to clear your debts. You need to understand what bankruptcy is how it can help and what your expectations should be once you file. There are lots of bankruptcy types, chapter 13 being one of the most common. We will be discussing things that can be noted when you file a Chapter 13 bankruptcy.
What is Chapter 13 Bankruptcy?
It is also called Wage Earners Income sometimes and debt is not all forgiven. What happens instead is that there would be a restructuring so that those who have an income have an opportunity to repay. This option is best for borrowers who can still make payments on their debt, but who are struggling to pay in the manner their creditors wants them to.
Many of those who file for bankruptcy prefer Chapter 13 because it allows them to retain their property while settling their debts. With other filings, you’ll often have to give up your home, car, and other property during the process so that they can be liquefied in order to repay debt.
How Does Chapter 13 Work?
You will be asked to submit a plan that reorganizes your debt repayment in order to repay some debt, forgive some debt and protect your assets when you file for Chapter 13. Credit card debt and personal loans are the types of debt Chapter 13 can forgive, other ones such as Alimony payments, taxes, child support and student loans are not dischargeable in bankruptcy filings. There are limitations as to how much debt you can carry when you choose to file;
- You cannot have more than $394,725 in unsecured debt, such as personal loans and credit card debt.
- You cannot have more than $1,184,200 in secured debt, such as auto loans and home mortgages.
When you file for Chapter 13, it allows you to restructure your loan repayments so that you can (hopefully) afford to keep your secured debt. Often, filing for Chapter 13 will allow you to stop foreclosure proceedings.
What Process Can you expect to go through when you file?
Your first step should always be to secure a bankruptcy lawyer with any type of bankruptcy filing. You are expected to pay the attorney you hire as well as a filing fee to the bankruptcy court and other administrative fees. The following information will be required of you when you start the process of filing;
- A list of your monthly living expenses and budgets
- Information on all creditors and how much you owe
- Income information
- Information on all property you own
- Tax returns
You can expect to be required to undergo credit counseling prior to your Chapter 13 filing. Once that is completed, you’ll then need to work with your bankruptcy attorney to devise a repayment plan. The sufficiency of your plan to repay debts and also the realistic of your plans according to circumstances and financial situation would be determined by the judge overseeing your filing.
All payments would be made under Chapter 13 rules set forth and must be made on time once your plans have been approved. Any change in your plan that prevents you from repaying your debts should be reported to the court and you should also seek a modification in your loan. The risk of being canceled if you do not meet the plan stipulations is run by your Chapter 13.
What Can You Expect After Filing Chapter 13?
After you go through Chapter 13 proceedings and your plan is approved, it’s time to focus on repaying your debt under the new structure. Unfortunately, the bankruptcy will be listed on your credit history for up to 7 years; however, during and after the 7 years, you have the opportunity to rebuild your credit by satisfying your debt and making your payments on time. There might be little troubles when you are initially trying to secure loans, but your credit score and history will improve after you complete your bankruptcy plan which usually is 3-5 years and you show how responsible you are over time.
What Are Other Options to Consider Besides Bankruptcy?
One of the viable options to assist you with your debt is bankruptcy; there are however, other options you can consider before filing for bankruptcy, such as:
- Credit counseling
- Debt consolidation
- Debt management
- Debt settlement