If you’re struggling with debt and you earn too much money to file for debt relief under Chapter 7 of the U.S. Bankruptcy Code, filing for relief under Chapter 13 may be a great alternative for your unique financial circumstances. Chapter 13 bankruptcy relief is available to virtually all individuals (and married couples filing jointly) who haven’t filed for bankruptcy relief in the recent past. If you’re struggling with more than one or two debts, it is an opportunity worth considering.
The Automatic Stay
As an experienced bankruptcy lawyer – including those who practice at The Law Offices of Ronald I. Chorches – can explain in greater detail, the automatic stay protects bankruptcy filers from most collections-based actions for as long as their bankruptcy cases remain active. Essentially, when someone files a bankruptcy petition, the automatic stay is put into place as soon as the court acknowledges receipt of the filing. While the automatic stay is in place, most creditors cannot request repayment, advance a legal case against the filer, garnish the filer’s wages, etc.
This particular protection is often used advantageously by Chapter 13 filers who are facing foreclosure. Under certain circumstances, filing for bankruptcy can stop foreclosure proceedings long enough to remedy an overdue balance. This approach can allow homeowners to remain in their homes while they’re weathering tough financial circumstances.
Manageable Repayment Terms
The reason why a Chapter 13 bankruptcy case lasts for 3-5 years is that Chapter 13 filers are required to make manageable monthly repayments on their debts for this length of time before the remainder of any eligible debts can be discharged. This process is distinct from the low-income form of bankruptcy known as Chapter 7, which doesn’t require filers to repay their creditors before their eligible debts can be discharged.
Note that the word “manageable” is key, here. Oftentimes, individuals find themselves in need of bankruptcy relief not because they can’t pay any of their debts, but because they are overwhelmed by their debt payments. In preparation for filing a Chapter 13 case, you and an attorney will work together to construct a truly manageable repayment plan that will make it possible for you to reliably meet your monthly obligations to your creditors and the court.
Discharge of Eligible Debts
Generally speaking, secured debt is not dischargeable in bankruptcy proceedings, while most unsecured debt is dischargeable in bankruptcy. Unsecured debts, like credit cards and medical debt, aren’t reinforced by collateral. By contrast, auto loans, mortgages, and even some loans for furniture and equipment, are secured by the very property that the borrower is trying to purchase via installments.
If you are able to successfully honor the terms of your repayment plan, all of your remaining eligible unsecured debt will be forgiven upon the conclusion of your repayment period. You’ll also have benefitted from time to repay outstanding balances on your secured debt, which could allow you to keep those purchases that might have otherwise been at risk of repossession.