Is Chapter 13 Bankruptcy Is Right For You?

Filing for bankruptcy can be a stressful and confusing process. If you have a steady income but are having a difficult time paying your debts to the point where you are considering bankruptcy, Chapter 13 is a way for you to pay off your debts while keeping your property. While only an attorney can advise you on whether you qualify or if it is the wisest course of action, there are good reasons to consider it as an option.

An individual filing for bankruptcy usually does so under Chapter 7, commonly called "straight bankruptcy". Filing this way, some of your property will be sold off and the money used to pay your debts (exactly what property is exempt from being sold varies from state to state). One of the biggest advantages of filing under Chapter 13 is that the individual is allowed to keep his or her property during the proceedings. Instead, under the supervision of the court, a payment plan is established that allows the individual to pay off the debts from his or her wages over the course of 3-5 years. Because of this, it is also known as "Payment Plan Bankruptcy" or "Wage Earner Bankruptcy".

Another advantage is that it will appear on a credit report up to 7 years from the date of filing, as opposed to the 10 years for a Chapter 7. If you are currently filing under Chapter 7, you can speak to your lawyer about converting to a Chapter 13.

Once you have a payment plan set up, you must remain vigilant about making payments. If you lose your job or your wages are reduced at any time while you are making payments, speak to your lawyer immediately. He or she will file an amended payment plan with the court, or can arrange to have the payments suspended while you look for another job. If your income increases while you are making payments, you do not necessarily have to increase your payments; however, if you experience a significant financial windfall such as lottery winnings or inheritance, you must report it to the court, who can decide to use all or a portion of the money to put towards your debts.

Chapter 13 is not for everyone. If you have too much debt, or if you lack the disposable income to afford a payment plan, you will not be eligible. In addition, some debts are not dischargeable in bankruptcy; income tax debt, back child support, and student loans are just a few examples of debts that are not covered by bankruptcy. Only a lawyer can tell you if your debt can be discharged by bankruptcy, and if you are eligible to file under Chapter 13. That said, it can also be a sound strategy for wage earners looking to reclaim their financial stability.