Chapter 13: Closing The Door On Debt

If you're suffering because of debts you are unable to pay back in a reasonable time frame, leading to myriad financial problems in your life, you might want to consider filing for bankruptcy. The bankruptcy filing process is divided into two main types for individuals: Chapter 13 and Chapter 7. The former is for those who are willing to make an honest effort to pay back their debts, but need some concessions in order to get it done. By going through this method, the individual is able to retain their property and belongings, which may not be the case when it comes to 7.

How It Works

In a nutshell, Chapter 13 bankruptcy is a government monitored repayment plan. While you almost certainly have repayment plans with your debtors, they may require far too much on a monthly basis to make it possible for you to keep up with the payments. If you have a job, the bankruptcy plan will give you a plan that will let you pay down all of the debts in three to five years.

Example

It can be difficult to conceptualize the Chapter 13 bankruptcy process without a concrete example. Let's take Bill. Bill has a couple of credit cards and a car loan. He owes $25,000 on the credit cards and he owes another $10,000 on the car loan. Through a combination of circumstances, Bill finds himself unable to keep up with his monthly payments. Because of this, credit card collection workers are calling his house and job and he is in danger of having his car repossessed by the bank. To avoid being sued or having his method of transportation taken away, he decides to file for bankruptcy. After taking a means test, he qualifies for Chapter 13. At that point, he enters into a repayment plan that gives him a reasonable monthly payment and a significant reduction on interest. More money goes to the balance of the loans and he is able to keep his car and other belongings.

Appropriate Situations

There are a number of scenarios in which filing for Chapter 13 bankruptcy may be the right move to make. One of the most common is having secured loans you are falling behind on. You don't want to lose your car or your house and this is one of the best ways to make sure that you don't. It may also be appropriate for student loans, which cannot be discharged through Chapter 7 filings. They may be eligible for the repayment plans in this form of bankruptcy, however.