Those with overwhelming debts will understand the feeling of not knowing which debt to tackle first. When you know that you cannot afford to pay all of your debt repayment obligations, it becomes a matter of prioritization. But when you have a wide range of debts that are all subject to differing rates of interest, creating an effective debt repayment strategy can be very difficult to do.
This is why debt reorganization is such a great option for many debtors. It can help them to simplify their debts so that they feel less of a burden, but it can also help to minimize interest rates and reduce additional fines. One of the ways that debts can be reorganized is through Chapter 13 bankruptcy.
How does Chapter 13 bankruptcy reorganize debts?
When a debtor files for Chapter 13 bankruptcy, an automatic stay is put into place. This means that creditors cannot take any action against the debtor, from foreclosure proceedings to debt collection communications, until the automatic stay is revoked. This makes it possible for debtors to essentially pause time, and use the benefits of bankruptcy to reorganize debts in a more manageable way.
Chapter 13 bankruptcy involves the creation of a repayment plan. Your income and expenses will be taken into account, and your theoretical disposable income will be established. A plan will then be created to ensure that your monthly debt repayments do not exceed your monthly disposable income. This plan could be in place for between three and five years, enabling you to pay off your debts in a structured way.
Who is eligible to apply for Chapter 13 bankruptcy?
One of the main eligibility criteria for a Chapter 13 bankruptcy filing is that the debtor must have sufficient income to pay their debts. This means that you should have a steady and dependable income. In addition, your unsecured debts should not exceed $336,900, and your secured debt should not exceed $1,010,650. You should also have filed income tax returns in the last four years.
If you are struggling with overwhelming debt, you should know that there are countless options for tackling these issues. Make sure to investigate the different bankruptcy options so that you can make the best choice for you.