Chapter 13 bankruptcy is one of the two most common forms of personal bankruptcy that Americans use to relieve themselves of burdensome debt. Unlike Chapter 7 bankruptcy, which requires individuals to liquidate much of their property in order to pay off creditors, Chapter 13 bankruptcy utilizes a debtor’s disposable income to pay off their obligations over time. Before committing to a form of personal bankruptcy, a Maryland resident should be sure that they fully understand what will be expected of them in the process. This post touches on several key facts related to Chapter 13 bankruptcy, but no part of it should be read as legal advice.
Fact #1: Chapter 13 Debtors Generally Get to Keep Their Property
Chapter 13 bankruptcy is based on the presumption that a debtor has some money left over after they pay for their needs like food and shelter. Once those costs are covered, their leftover or disposable income is used to pay down their outstanding debts. Debtors do not have to sell off their assets in order to get out of debt and can continue to own their possessions as they pay off their obligations.
Fact #2: Chapter 13 Spreads Payments Out Over Time
In a Chapter 13 proceeding, a debtor is not required to pay off all of their debts in a single lump sum payment. Rather, their debts are amassed and they pay the total sum down over time with the money they are able to set aside. Their payment plan must be approved before it may be accepted as their means to satisfying their creditors.
Fact #3: Chapter 13 Does Not Alleviate All Debts
As many readers know, some debts cannot be forgiven through personal bankruptcy. One example of this is student loan debt. When debtors are overwhelmed by their student loan payments, they may wish to speak with bankruptcy and debt relief professionals to better understand their options for improving their situations.
Fact #4: Filing for Chapter 13 Can Alter When Future Bankruptcies Can Be Pursued
An individual may be able to file for personal bankruptcy more than once in their lifetime, but the form of bankruptcy that they pursue and when their filing and discharge are secured can impact when they may pursue the process again. Before starting a second or third bankruptcy process, an individual should ensure that they are not barred from doing so by their past bankruptcy actions.
Fact #5: Pursuing Chapter 13 Will Change a Person’s Access to Future Credit
Getting credit in the form of a credit card or mortgage can be tough for someone who has pursued Chapter 13 bankruptcy. Individuals who have gone through bankruptcy may suffer from diminished credit scores and may not appeal to lenders. However, over time an individual who has gone through bankruptcy may have options for rebuilding their credit history. Their trusted bankruptcy attorney can provide them with support as they navigate the difficult waters of debt recovery.