Chapter 13 bankruptcy differs from Chapter 7 bankruptcy in a number of ways. One is allowed to keep one’s assets, whether they are exempt or not, and in return one is required to pay off all or part of one’s debts over a three to five year period. Chapter 13 is an attempt to reorganize a person’s debts and develop a payment plan based on the person’s income, with a priority toward domestic and child support and tax obligations. Depending on the plan, unsecured debt such as credit card balances and medical bills may not be included in this allocation at all, though some plans will require at least a good faith effort to pay at least part of these debts. The debtor will make a monthly payment to a chapter 13 trustee who divides the money and pays the creditors.
Besides being required to make the monthly payments, the debtor is prohibited from taking on additional debt such as a car lone and is required to maintain insurance for any property that is collateral for an outstanding loan.
According to a recent article on Fox Business, developing and sticking to a Chapter 13 repayment plan can be very difficult, since one is placed on a tight budget. Failures to complete a repayment plan are more common that often realized. While a bankruptcy court can be forgiving and flexible if an unexpected emergency takes place, such as a car breakdown or an illness in the family. However failure to complete a repayment plan can have severe consequences. The bankruptcy can be converted to Chapter 7, which means that one’s assets, according to what is not exempt under state law, will be sold off. The case can even be dismissed, making one in worse fiscal shape than ever.
However if one is successful in completing a repayment plan, one will get to keep ones assets such as a house and car and will be on the lengthy road to repairing ones credit.
For more information contact the Law Offices of James C. Shields to schedule a free bankruptcy evaluation today!