Some people have severe financial crises due to a variety of life events.
Just because you have a lot of debt doesn’t mean you can sell everything and pay your creditors. Some programs and bankruptcy alternatives may be suitable for your needs. If you don’t want to liquidate all of your assets and have some disposable income, Chapter 13 bankruptcy may be the best alternative for you. Because you can extend your payment plan up to three to five years instead of liquidating assets, this bankruptcy is also known as repayment or reorganizational plan. This post will go over the facts you need to know about Chapter 13 in detail.
1. You can restructure your debt.
You can restructure your debt obligations with Chapter 13 bankruptcy, which can save you hundreds of dollars in interest and penalty fees. Furthermore, Chapter 13 permits you to combine all of your debts into a supervised repayment plan, including school loans, tax responsibilities, and government debt.
Many persons who do not qualify for Chapter 7 bankruptcy discover that Chapter 13 is their best alternative for alleviating the financial stress of high monthly payments.
2. You will be able to repay your loans.
If you have a mortgage or a car loan and have consistently missed monthly payments, chapter 13 bankruptcy may be able to assist you in making up the difference. You won’t be able to do so if you file a chapter 7 bankruptcy.
3. You can pay off your debts.
You must file a chapter 13 bankruptcy if you are willing to settle your obligations but are continuously harassed by credit collectors.
You’ll be able to acquire bankruptcy court protection to stop credit collectors from harassing you. It will also give you a clear plan and a deadline for repaying your obligations.
If you stick to the rules, you’ll be able to pay off all of your debts.
4. You won’t lose your non-exempt property
If you file a chapter 13 bankruptcy, you won’t lose any property and will instead cover your obligations and expenses using your income.
You will only be allowed to save your exempt property if you choose the alternative option.
Your non-exempt property must be given to the chapter 7 trustee, who will sell it and reimburse your creditors the proceeds.
5. You can file for Chapter 13 bankruptcy, even owning a business
If you own a small business, you can file for Chapter 13. If you run your firm as a corporation, limited liability company, or other large legal organization, you won’t be able to petition for Chapter 13. However, because the owners of most small firms are personally accountable for all of the company’s debt, it is the owners who should file for bankruptcy.
6. You can keep your property in Chapter 13
One of Chapter 13 bankruptcy advantages is that you can keep all of your assets, including non-exempt assets.
You make monthly payments under your Chapter 13 plan in exchange for keeping your home. Keep in mind that if your home has a mortgage or loan, you will still be responsible for making payments on the loan or mortgage, although the amount you must pay may be decreased.
7. You can get relief from unsecured debt
Another prevalent misunderstanding regarding Chapter 13 is that it only applies to secured obligations like mortgages and vehicle loans. While secured obligations take precedence in a Chapter 13 filing, unsecured debts may also be mentioned.
Bankruptcy regulations prohibit creditors from receiving preferential treatment, which is why all debts must be disclosed in the filing. On the other hand, secured debt creditors have precedence in terms of repayment if the debtor plans to keep the property. Unsecured obligations are repaid in a Chapter 13 bankruptcy in many circumstances, although they are not always paid in whole.
The debtor’s financial status decides how much they will repay and which creditors will be paid by the due date.
8. Income level is not the only factor in Chapter 13
How the repayment plan is formed and administered is one of the most misunderstood aspects of a Chapter 13 case. The majority of consumers believe that their income level is the only aspect that affects their repayment plan. This frequently results in withholding. While income is taken into account when determining how much a person may be compelled to repay, other finances, monies, and valuable items are also taken into account. This applies to retirement savings, benefits, and even personal assets. However, the inclusion of these funds does not always imply that they would be garnished for repayment purposes.
9. Chapter 13 can be converted in Chapter 7
There are a few choices available if you cannot make your Chapter 13 installments.
Your case can be transferred to Chapter 7 if you cannot make payments due to a drop in income. You can change your payment schedule by amending your Chapter 13 plan. Payments can be temporarily reduced or stopped entirely.
Later payments will be raised to compensate for this. If your plan is less than five years old, the length of the plan can be extended to reduce the increase in monthly expenses.
10. It can affect your credit score negatively
One disadvantage of Chapter 13 bankruptcy is the damage it causes to your credit report. Your credit score before bankruptcy determines how much of an impact it will have. If your credit score were already poor, bankruptcy would probably have little, if any, effect on it. Also, because bankruptcy will wipe off most or all of your debt, it will no longer appear on your credit report as owing. A Chapter 13 bankruptcy will remain on your credit report for up to seven years.
However, just because you’ve filed for bankruptcy on your credit record doesn’t mean you’ll have to live with the consequences indefinitely. After seven years, you can renew and start over.
The fallacies surrounding bankruptcy include everything from asset liquidation to a tarnished image. The problem with misconceptions regarding the process is that they prevent people from reaping the benefits of bankruptcy. Before you file a chapter 13 bankruptcy, it is always advisable to hire a bankruptcy attorney who will help you throughout the process. Try to hire an experienced and efficient bankruptcy attorney who has dealt with crucial financial matters and can give you valuable suggestions.
About The Author: Lyle Solomon is a principal attorney for the Oak View Law Group in California, where he specializes in consumer finance. He has also written several articles on financial well-being. Connect with him on LinkedIn or tweet him at @lyle_solomon.