Have you found yourself and your family under severe pressure of high debt that you cannot repay and that you are not able to afford essential expenses for your family like healthy food and safe shelter? Have you tried making personal lifestyle changes and are still in debt? Debt consolidation and debt management programs have helped but not enough to get you out of debt? Maybe, you need to consider filing for Chapter 13 bankruptcy. What is chapter 13 bankruptcy and is it for you? Read on to find out.
Bankruptcy Basics- Chapter 7 Vs Chapter 13
There are some specific things that you need to know about what is chapter 13 Bankruptcy. There are two different paths to consider Chapter 7 and Chapter 13. While both help to pay off creditors, they are distinct. Here is what you need to know:
- Income: Chapter 7 is an option for those who do not have any income but have other assets that can be liquidated to pay off creditors. Chapter 13, on the other hand, is more of a debt consolidation option. Chapter 7 allows individuals to liquidate their assets to pay off creditors at one shot, while chapter 13 allows individuals to outline a 3-5 year plan to pay off creditors a little at a time.
- Fees: To apply for bankruptcy, there are fees attached. The fees for chapter 7 filing are much less than chapter 13 filing. But, these fees are only what is charged by the government and do not include lawyer fees for which you are responsible.
- Payment: While chapter 7 only requires a one-time payment to your creditors, chapter 13 requires you to earn a steady income and make regular payments into your trustee account in order to pay your creditors off over time. You may be subject to wage garnishment and sale of your property.
- Trustee: A trustee is part of both bankruptcy plans. While the involvement of the trustee who disposes of payment to various creditors is shorter in chapter 7 plans, they are involved for a longer time in chapter 13 collecting payment from individuals and disposing them to creditors who are to be paid.
- New Credit: When filing under Chapter 7, individuals can apply for new credit after 12 months of filing, but with chapter 13, individuals cannot file for any new credit without the permission of a bankruptcy court. Even new debt, like buying a new car, has to be approved by a court for those who filed for chapter 13 bankruptcy.
- Time: Chapter 7 is easily planned and discharged, so it may only be brief- lasting as long as your assets can be sold and pay off creditors. Chapter 13, though, can be a long, drawn out process that can last up to 5 years, during which time you are obligated to pay your debt with what you earn. Chapter 13 sets up a trustee account that an individual can pay into to pay off creditors.
- Credit Report: Once filed, chapter 7 bankruptcy remains on your credit report for about 10 years while a chapter 13 bankruptcy remains on your credit report for about 7 years from the date of filing.
To find out more about what is chapter 13 bankruptcy, seek out a lawyer or accountant with bankruptcy experience in your area.
Does Chapter 13 Fit Into Your Life?
You need to consult a lawyer or accountant to determine what is chapter 13 bankruptcy and if it is right for you. There are several things you need to consider as an individual if you are considering chapter 13 bankruptcy. Here are some of them:
- Income: You need to have regular income if you are to file for chapter 13 bankruptcy. If you do not have income, you may be forced to file for chapter 7 bankruptcy forcing you to liquidate assets.
- Assets: Do you have assets that you can liquidate for cash like a car or a home? You can consider selling your assets to pay off creditors before you file for bankruptcy as you can avoid the damage it would do to your credit history.
- Time: Bankruptcy plans allow you additional time to pay off debts like mortgages. Be aware, though, that you might be opening your house up to foreclosure if you choose to file for bankruptcy.
- New Credit: Remember that while filing for bankruptcy may streamline your payments and get creditors off your back, it also ties you up for 3-5 years. You cannot obtain new credit or buy any substantial asset for the duration of your plan. In addition, because the bankruptcy remains on your credit report for about 7 years, it can be difficult for you to get new loans.
- Payment: The chapter 13 payment plan is interest free and takes care of secure as well as unsecured loans and debt.
It is important to be an educated customer before you make the decision to file for bankruptcy. Be sure to know what is chapter 13 bankruptcy and how it will fit your life and circumstances.