Chapter 13 bankruptcy is a subject of confusion for many people. There is much to know about Chapter 13 bankruptcy before deciding whether or not to file for it. An important thing to remember is that filing for Chapter 13 is neither inherently good nor bad—it all depends on your specific situation. Learn more by reading up on these three facts you may not know about Chapter 13 bankruptcy.
#1: Chapter 13 bankruptcy is significantly different than Chapter 7 bankruptcy.
With Chapter 7 bankruptcy, you can request that a court discharge your debts for you, and in return, the court can sell a portion of your property order to pay your debts. The Chapter 7 process includes one visit to the courthouse, takes about four to six months, and costs about $300. While Chapter 7 bankruptcy is more common, less expensive, and a less lengthy process, Chapter 13 bankruptcy does not involve liquidation—you can keep your property, because you are repaying your debts through your income, not your home, car, and other assets. In addition, to file Chapter 13, you must receive credit counseling from an approved agency.
#2: Not everyone is eligible for Chapter 13 bankruptcy.
When you file for Chapter 13, you are expected to pay some or all of your debts in three to five years. In order to be eligible for Chapter 13 bankruptcy, you must prove to the court that you are able to make your payments regularly—therefore, low- or no-income people may not have the option of Chapter 13 bankruptcy. Even if you have a regular income, if your debts are too high, a court may not allow you to file for Chapter 13 bankruptcy. Chapter 13 also demands that you must pay certain debts in full, or you will not be allowed to proceed.
#3: Your income helps determines how lengthy the Chapter 13 process is.
If your income from the six months prior to filing Chapter 13 is higher than the median income for your state, you’ll likely be put into the five-year plan. However, if your income is lower than the median, you are eligible for the three-year plan. In addition, the amount you owe is also a determining factor. After you’ve completed your plan, your eligible remaining debts are wiped out—that is, after you complete a required budget counseling course.
For more information and to ask questions contact Lewis Adams and Associates.