When consumers turn to bankruptcy, it means they are deeply in debt and that debt is preventing them from living their life. Bankruptcy is designed to help out people who truly need it. Filing for bankruptcy does not have to be scary or harassing. Filing for bankruptcy is one possible option for anyone who needs a fresh start and has too much debt. Many consumers are confused when it comes to the difference between a Chapter 13 bankruptcy and a Chapter 7 bankruptcy. This post will try to explain what Chapter 13 bankruptcy is and what it does for a consumer that files for this form of debt relief.
I want to make sure that you understand the definition of bankruptcy before explaining what a Chapter 13 bankruptcy is. Bankruptcy is a legal process that is filed in a court of law, where a trustee is assigned to a case against a business or individual. One reason to file for debt elimination is to rid individuals or businesses of financial obligations they cannot currently pay. This gives them a clean slate to start their finances anew.
Chapter 13 bankruptcy is the one option that debtors can file for that allows them to keep some of their personal property. Chapter 13 bankruptcy is referred to as reorganization bankruptcy so some debts are never discharged. If you’re looking to get out of debt within a few years, this form of debt elimination may be for you. This strategy is preferable for people who want to keep some of their belongings and have the means to cover their regular living expenses while still having money left over to pay off their accumulated debt.
When filing for Chapter 13, the individual will present a bankruptcy petition that lists their assets and liabilities. The debtor will then present their repayment plan to their creditors, who will decide if it meets the requirements of both the debtor and the creditors. If it does not, then the debtor may either keep paying their creditors or file for bankruptcy. If no one objects or argues, then both the creditors and the person filing for bankruptcy must follow the reorganization plan.
There are still more confirmation tests that need to be done before a reorganization bankruptcy can take place. A key component of this test is comparing the amount unsecured creditors would recieve under the plan versus what they would get if the person or company filed for Chapter 7 bankruptcy. What this means is that unsecured creditors must be able to receive the same amount of compensation with a Chapter 13 as they would for a Chapter 7. This is usually not the case, and oftentimes it is the bigger creditors that receive more, leaving the smaller, more creditworthy creditors with a smaller share of the pie. The individual filing for bankruptcy must pay all of their disposable income into the repayment plan as a final test.
Chapter 13 is especially beneficial for consumers who want to keep important possessions such as their home. For instance, a Chapter 13 bankruptcy can stop a foreclosure. A Chapter 13 bankruptcy will halt a foreclosure if the debtor (the person facing foreclosure) can show that they cannot afford to pay the mortgage payments. The consumer has a certain amount of time to catch up on missed payments. This is called an automatic stay. No one is served by foreclosure. If an individual is unable to catch up during this reorganization, the foreclosure proceedings will continue as before. The foreclosure proceedings will be initiated on the individual’s home after they have missed three consecutive payments.
In conclusion, it is highly recommended that you consult with an attorney who is knowledgeable in bankruptcy law in order to receive the most accurate information concerning a Chapter 13 bankruptcy or any other form of bankruptcy. A bankruptcy can wipe a person’s slate clean. However, a person’s credit for a specific period of time will be marred by the bankruptcy. A person may have a hard time obtaining future loans, etc.