Is Chapter 13 bankruptcy right for me?

Californians who are experiencing financial struggles and cannot find a way out should consider filing for bankruptcy. A question that is often asked, however, is which chapter would be best. There are numerous options available and the right one depends on the circumstances. Chapter 13 bankruptcy is beneficial for those who have a job and earn wages and would like to repay their debts.

With Chapter 13, a plan will be crafted so the debts can be repaid within three to five years. Whether the plan will be three or five years is contingent on the debtor's income. If it is less than the state median, the plan will be for three years. It can be made longer for cause. A debtor who has an income that is higher than the state median will generally have a plan of five years. The payments cannot go beyond five years. While the payment plan is in place, creditors are not allowed to begin or continue efforts at collecting on debts.

Chapter 13 is useful because it does not require a liquidation as Chapter 7 does. It allows a homeowner to retain the property and avoid having it foreclosed upon. The foreclosure proceedings will stop and, over time, delinquent mortgage payments can be cured. The debtor is responsible for making the mortgage payments that come due during the Chapter 13. Secured debts, not including a mortgage for the debtor's primary residence, can be rescheduled under Chapter 13 and extended for the time frame of the plan. This can reduce the payments.

If there is a third party who is liable for consumer debts, a Chapter 13 provision will protect them. Chapter 13 is akin to a consolidation loan where the payments are made to the trustee. The trustee will distribute payments to creditors. The debtor will no longer have contact with the creditors while the Chapter 13 is in progress.

The word bankruptcy can be frightening to anyone. It might be perceived as an attempt to get out of one's responsibility to pay what is owed. It can also stoke fear that a home or car will be lost as part of the process. Chapter 13 prevents that. If the plan is followed and it is applicable to the debtor's situation, it is a smart way to clear debt. Discussing it with a legal professional who is experienced in all forms of bankruptcy law can help with coming to an informed decision.

Source: uscourts.gov, "Chapter 13 -- Bankruptcy Basics," accessed on July 25, 2017