The burden of an insurmountable debt could cause worry, panic and apprehension. When there is nothing left to do, debtors usually resort to filing for bankruptcy relief. However, bankruptcy is not a dead end because it may be the solution to your financial woes.
What is Chapter 13 bankruptcy?
Debtors with regular income may file for Chapter 13 bankruptcy. Also known as the wage earner’s plan, it permits debtors to create a repayment plan for three to five years.
Petitioners can be employees, self-employed individuals and owners of unincorporated businesses. Aside from having regular income, a debtor should have total secured and unsecured debts amounting to less than $2.75 million.
Benefits for creditors and debtors
The advantages of filing for Chapter 13 bankruptcy go both ways. Creditors can receive payments in an organized manner, while debtors may start anew with a repayment plan. Debtors also get these additional benefits:
- Payment of installments via payroll deductions
- The chance to save their homes from foreclosure
- Rescheduling of secured debts apart from the mortgage for their primary residence
- Protection from creditors since the Chapter 13 trustee will receive and distribute the payments
If there are co-debtors, Chapter 13 bankruptcy could spare them from being responsible for paying for consumer debts. Debtors incur consumer debts mainly for personal, household or family purposes.
Fulfilling the repayment plan
Debtors have the responsibility to abide by the repayment plan. They must pay on a regular basis, which is typically monthly or biweekly. In addition, they should avoid incurring new debts. If there is an urgent need to do so, they should consult with the Chapter 13 trustee.
Bouncing back from insolvency
Getting the chance to write off your debts via a repayment plan might be a bane and a boon. On the downside, you may have to live on a tight budget and might be unable to accrue savings. But the upside is that you could bounce back to redeem your financial standing.