Chapter 13 Bankruptcy is Filed By Individuals Who Want To Pay Off Their Debts Over a Period of Time
Chapter 13 differs from chapter 7 because it involves a repayment plan that is submitted to the trustee and the bankruptcy court for approval. The debtor is required to create a feasible monthly budget that will enable them to meet their basic needs and still be able to afford to make scheduled payments to the bankruptcy trustee. A formal plan is prepared and submitted with the bankruptcy petition to determine how much money will be repaid to the creditors through a deed trust payment each month. Chapter 13 permits a debtor to repay in monthly installments for three to five years and allows the debtor to keep all of their assets, even if their value exceeds the amount of the exemptions allowed by the state. Chapter 13 allows debtors to propose repayment of unsecured debts such as credit cards at a fraction of what was owed. You may maintain your secured assets because, over time, you will be repaying your creditors the amount that you had fallen delinquent. To qualify for chapter 13, your unsecured debts must be less than $250,000 and your secured debts must total less than $750,000. In addition, you must have a stable and regular income.
If a debtor has considerable debts that may be liquidated and lost under Chapter 7 they may consider chapter 13. Debts that would not be discharged under chapter 7 can be included and retained under chapter 13. For example, if a debtor’s mortgage or auto payments are behind and they do not have the ability to bring them current, Chapter 13 may be the answer. It will allow the arrears to be paid back over a three to five year period and the creditors would not be permitted to repossess the vehicle, provided the debtor made the bankruptcy payments on time. Chapter 13 allows a debtor who was in arrears on federal income tax to establish a payment plan through which they can pay the IRS back over time. Under chapter 13 the automatic stay will protect any cosigners on the consumer’s debts. A chapter 13 bankruptcy is not discharged until all deed trust payments have been made which usually takes three to five years.
Another method to consider before claiming Bankruptcy, is Debt Consolidation. Debt consolidation is a method that effectively repairs your credit score and credit history.