Struggling with debt can be overwhelming. Chapter 13 bankruptcy is one option that is available to provide relief from the stress associated with overwhelming debt. Chapter 13 bankruptcy is considered a ‘reorganization bankruptcy’ that allows the filing party to reorganize his or her debt to repay it according to a more manageable repayment plan. The debts will be repaid over a period of time, typically three to five years depending on certain circumstances, rather than selling property to repay debts, which is commonly associated with a Chapter 7 bankruptcy.
Because Chapter 13 bankruptcy provides for the repayment of debts according to a schedule determined in the repayment plan, the filing party must have a regular and reliable income that is able to repay the debts in order to apply for Chapter 13 bankruptcy. In addition, certain debt limits are in place, and are important to be familiar with, when filing for Chapter 13 bankruptcy. As part of the process, the filing party must attend credit counseling and pay a fee to apply.
Under the repayment plan established, debts are prioritized for repayment. Priority debts, such as tax debts and child support, must be repaid. Based on the income of the filing party, secured and unsecured debts are then prioritized for repayment according to the repayment plan. At the end of the process, if the repayment period has been adhered to, remaining debts will be discharged, which provides the filing party with a fresh financial start. In other circumstances, conversion to a Chapter 7 bankruptcy or other options may also be available.
In general, there are a number of different options available to individuals struggling with debt burdens. It is important to be familiar with different bankruptcy options for different situations to help consumers enjoy debt relief and focus on a productive future.
Source: Bankruptcy.findlaw.com, “Chapter 13 Reorganization Bankruptcy,” Accessed Sept. 20, 2016