Declaring bankruptcy through Chapter 13 might benefit you if you do not want to lose your property and other assets. Chapter 13 bankruptcy is often known as the “wage earner’s plan;” rather than selling your assets, you can enter into a payment plan to reduce (and eventually eliminate) your debt.
This type of bankruptcy helps by consolidating your debt, so you only make one payment. The payment goes to a trustee who redistributes funds to creditors. A single monthly payment may be easier to manage than making several smaller payments throughout the month.
You might consider hiring a bankruptcy attorney, since the payment plan is the result of negotiations with a federal bankruptcy court. A legal professional can explain the process, offer advice, and speak on your behalf. However, it is not required.
Like a Chapter 7 bankruptcy filing, this process stops creditors from seizing properties and seeking payments. Once you file for bankruptcy and stick to your repayment plan, creditors can no longer contact you about your debts.
In addition to attending an approved credit counseling course within 180 days, you are typically required to pay a filing fee and provide the following information:
- Sources and disclosures about your income
- A list of your living expenses
- A list of your properties, including leases and contracts
- Recent tax information, including an unpaid taxes statement
- A list of your creditors and debts
You and your bankruptcy lawyer – if you choose to hire one – can work together to create a repayment plan. The primary goal of Chapter 13 bankruptcy is to pay off most or all of your debt within a set period. The length of the repayment plan depends on whether your earnings are equal to or higher than the median income.
- If your income is less than the median annual income: three-year plan
- If your income is equal to or greater than the median annual income: five-year plan
You can use Chapter 13 bankruptcy to extend some of your secure debt payments, which helps reduce the monthly minimum payment to give you more breathing room for everyday costs. However, you must continue to make mortgage payments according to the loan terms.
- Secured debt is attached to a physical object, such as a mortgage and car loan.
- Unsecured debt includes credit cards and medical bills.
The government may discharge some eligible unsecured debts, meaning you do not have to pay that debt. Filing Chapter 13 does not eliminate all of your debt. Alimony, child support, student loans, and certain types of taxes are not dischargeable.
Chapter 11 bankruptcy is similar to Chapter 13, but is intended for businesses. Large companies can file this type of bankruptcy to stay in business while paying creditors. The types of bankruptcy you can file for depends on your personal and financial situation. For example, you may be able to file for Chapter 7 if you have a low income, whereas you may only be able to request a Chapter 13 if you earn enough for a repayment plan. Learn about the specific requirements for both processes next.