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Chapter 13 may be an option to start over financially if you earn too much money to quality for Chapter 7 or don’t want to sell off your assets. A successful repayment plan can help you get back on on a more manageable path to stability in three to five years.
Chapter 13 is sometimes called a wage-earner’s plan, because it allows you to keep important assets — like your home — as you work with creditors on other types of consumer debt.
After you attend a required credit counseling session and file your paperwork, you’re given 14 days to design and submit a payment plan for the court to approve. Your payment plan is built around your monthly income and expenses, priority debts and nonexempt assets. And you’ll start repayments based on it right away, even before the judge gives it the green light.
To help with your case, the court hires an independent trustee, who accepts your monthly payments and distributes it to your creditors. You’re also granted an automatic stay from collection agencies and creditors, which can provide the breathing room you need to focus on steadier finances.
After three to five years, depending on your plan, your debt is discharged if you’ve faithfully kept up with expected payments and monthly bills.
If you have a steady income, aren’t willing to part with your assets and believe there’s no other way for you to repay your existing debt, Chapter 13 bankruptcy might be right for you.
Some people choose Chapter 13 because they aren’t able to meet the means test required to file for Chapter 7 — in other words, they make too much money to qualify for liquidation.
To help determine your chances of success, take advantage of a free consultation with a credit counselor or bankruptcy attorney. You might find that a less burdened financial future is worth the time and effort.
Bankruptcy is as involved as any government process, but you’ll need to follow general steps to succeed in your claim.
An attorney can provide the expertise necessary to navigate the requirements of the court and design a payment plan that protects your assets and best meets your goals.
Chapter 13 is among the more complicated bankruptcy choices, and courts are known to throw out filings for the slightest discrepancies in forms and schedules. Very few Chapter 13 cases have been successful without the involvement of an attorney.
To qualify for Chapter 13 bankruptcy, you must meet requirements that include:
A Chapter 13 bankruptcy stays on your credit report for seven years, which can make approval for credit cards, loans and other borrowing difficult.
But if you commit to your approved payment plan and make good financial decisions in the future, you can rebuild your credit score with time.
Bankruptcy should be the last resort if your finances are unsteady. A financial professional can help you take an unbiased look at your income and debts to learn whether restructuring your finances into a leaner, more efficient budget is doable on your own.
You might find that liquidating some of your assets — extra cars or a rented office you’re not using — could turn up enough cash to get the repayment ball rolling without stepping foot into a courtroom.
If you’re not comfortable with calling your creditors, a debt-relief company may be able to negotiate your debt and restructure your existing loan repayments to ease some of the immediate stress you’re experiencing. And possibly render Chapter 13 unnecessary.
Before you sign up with a debt relief company
Debt relief companies typically charge a percentage of a customer’s debt or a monthly program fee for their services. And they aren’t always transparent about these costs or drawbacks that can negatively affect your credit score. You might pay other fees for third-party settlement services or setting up new accounts, which can leave you in a worse situation than when you signed up.
Consider alternatives before signing up with a debt relief company:
Chapter 13 can help you maintain important assets while restructuring your finances. But it requires strict discipline and it can stay on your credit report for seven years.
Speak with a professional to consider all options, including the help of a debt-relief company, first. If your debts aren’t too excessive, a debt consolidation loan or balance transfer credit card might provide the breathing room you need to get back on your feet. Learn more and read our bankruptcy guide.
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