Chapter 13 bankruptcy is a program under US bankruptcy law that allows individuals who are in debt to keep the majority of their property. If a debtor qualifies, they can settle a portion of their financial obligations to the lenders based upon a repayment plan. Chapter 13 bankruptcy not only works for people who find themselves in massive debt but it also can be used by small businesses to reorganize their finances, reduce monthly payments and keeps their doors open
Chapter 13 Bankruptcy – How Does It Differ From Chapter 7 Bankruptcy?
The primary difference and key advantage of Chapter 13 over Chapter 7 personal bankruptcy is that it permits the debtor keep a few of their assets. These are assets which would certainly be sold off through the personal bankruptcy proceedings if the person chose to adhere to a Chapter 7 bankruptcy. In both Chapter 13 and Chapter 7 a person is likely be permitted to keep their primary residence and automobile in both cases assuming the debtor fits within the equity guidelines. However with Chapter 7 bankruptcies the petitioner won’t be enabled to keep rental home(s), collectibles, antiques, etc. Also with Chapter 13 bankruptcies the person filing bankruptcy will have their payments reduced sometimes drastically. A Chapter 13 discharge stays on your credit history for a shorter period of time (7 seven years) vs a Chapter 7 bankruptcy (10 years). Additionally it allows the petitioner to pay off debts that are considered “non-dischargeable” under other bankruptcy chapters like fraud judgments
Chapter 13 bankruptcy also differs in that the bankruptcy is only discharged once the debtor has completed the scheduled repayment plan. A Chapter 7 is immediately discharged at the end of the proceedings with the debt removed and the individual receiving a “fresh start” with their finances
Do I Qualify for Chapter 13
To qualify for a Chapter 13 the applicant needs to have $1,149,525.00 or less of secured liabilities and $383,175.00 or less of unsecured liabilities. If an individual’s liability exceeds these limitations then they are not eligible for Chapter 13.
How long does it last
The length of the repayment plan really depends on how much the debtor can afford to pay on a monthly basis after removing the essential monthly living expenses (Housing, food, transportation, insurance, etc)
Typically payment plans are 36 months. More time can be requested (up to an additional 24 months) if the petitioner is unable to afford the shorter repayment schedule.
For example let’s say that after paying off all normal monthly living expenses the debtor can only afford to repay $375 a month. Then after 36 months the court would discharge the Chapter 13 personal bankruptcy regardless of whether the debtor has actually repaid the whole of the unsecured debt or not.
It is important to understand that Chapter 13 bankruptcy has absolutely nothing to do with a debtor’s secured liability or their home loan. All secured debt like a mortgage must be repaid according to existing payment plans
Chapter 13 Personal Bankruptcy Disadvantages
Once started a petitioner must adhere to the repayment schedule or be dealt with harshly by the court. The court will dismiss a bankruptcy case promptly if the petitioner fails to keep up with the designated repayment plan outlined in the Chapter 13 bankruptcy
Effects on Credit History
Chapter 13 personal bankruptcy does have serious ramifications on an individual’s credit history. It will appear on the debtor’s credit rating for a minimum of 7 years. The good news is that the clock starts ticking at the moment of filing so in essence a chapter 13 will appear on one’s credit rating for only 2-4 years after discharge depending on the length of the repayment plan. As noted above this differs from the length of time that a Chapter 7 bankruptcy will stay on a credit report which is 10 years from the discharge date.
For more information to see if Chapter 13 bankruptcy is right for you call Kallabat & Associates today at (248) 647-6611 for a free consultation. We’ll be able to ask you some brief questions and get you on the road to a “fresh start” financially.