Bankruptcy is a tool designed to assist debtors to get a “fresh start” – free from the weight of previous debt. There are two major types of consumer bankruptcies: Chapter 7 and Chapter 13. This article will provide a brief overview of a Chapter 13 Bankruptcy.
Chapter 13 is a type of bankruptcy that allows you to essentially reorganize your debts. Under a Chapter 13 Bankruptcy, the debtor makes monthly payments to a neutral trustee. These payments reflect your partial ability to pay your debts, and the payments continue for thirty-six (36) to sixty (60) months. Once the trustee receives your monthly payment, they disburse that money to the appropriate creditors by order of priority. Chapter 13 Bankruptcies allow you to keep your property, instead of liquidating it.
So, why would someone file a Chapter 13 case that can last as long as five years when a Chapter 7 case usually lasts about four to six months? There are a number of factors that go into that decision. Here are a few:
When A Chapter 13 is Superior to a Chapter 7 Bankruptcy
- Frequently, individuals make too much money to qualify for a Chapter 7 Bankruptcy. Chapter 13 allows high-earners to still benefit from the bankruptcy process.
- Chapter 13 gives debtors the opportunity to enroll in a payment plan to satisfy their debts. It allows them to spread their payments out between three (3) and five (5) years; this is in contrast to putting up personal property as collateral.
- Chapter 13 may allow debtors to modify payment plans on debts older than 2.5 years.
- Chapter 13 provides a shield to individuals who co-signed on a loan.
- Chapter 13 allows the debtor to help deal with crippling student loan payments.
The main characteristic of a Chapter 13 Bankruptcy is a repayment plan, which lasts between three (3) and five (5) years. Once the payment plan has been completed, your debts are discharged. Reporting debts that have been discharged as outstanding on credit reports is likely a violation of the Fair Credit Reporting Act (“FCRA”). If you have received a Chapter 13 discharge, and believe that your credit report is still reporting discharged debts as owed, contact C.O. LAW, APC.