Bankruptcy can be a valuable tool to help Americans alleviate the burden of overwhelming debt. For many, bankruptcy conjures images of forced sales and the forfeiting of personal property. Liquidation, the defining process of Chapter 7 bankruptcy, does involve the sale of valuable assets. However, Chapter 13 bankruptcy is an entirely different animal, and may be a much more desirable option for those with significant equity in their home, a steady income or other property.
How It Works
In a Chapter 13 bankruptcy proceeding, debts are restructured to make repayment a more viable option. Usually, this that means the court will approve terms more favorable to the debtor, such as reducing or eliminating interest and lowering monthly installments. Under a court-confirmed repayment plan, the debtor will make regular payments for three to five years; after successfully completing the plan, any remaining balance on most types of debt will be discharged.
The first step in the Chapter 13 process is filing a petition with the local bankruptcy court. Along with the petition, a number of documents detailing the financial status of the debtor must be filed, including lists of assets, liabilities, income and expenses. A certificate of credit counseling and recent tax returns are also required. All of this information will be analyzed by the court in determining whether to approve the terms of a repayment plan and to ensure that the debtor meets the eligibility requirements for Chapter 13 bankruptcy.
Advantages
Filing for Chapter 13 bankruptcy can aid debtors in a variety of ways. Unlike other forms of consumer bankruptcy, Chapter 13 allows individuals to avoid foreclosure on their homes. Payments on many kinds of debt are often lowered and consolidated once a payment plan is approved. In addition, creditors will be prevented from direct contact with anyone going through Chapter 13 bankruptcy. Finally, Chapter 13 has special provisions that may insulate cosigners from liability.
For many individuals facing the burden of debt, Chapter 13 bankruptcy is an excellent option. To find out if Chapter 13 is the best option for you and to get the process in motion, consult an experienced bankruptcy attorney.
