There are multiple reasons why people might pursue a Chapter 13 bankruptcy instead of a Chapter 7 personal bankruptcy. While Chapter 7 bankruptcy is the fastest option, it also leads to major losses for some people with overwhelming levels of personal debt.
In a Chapter 7 filing, there are strict limitations regarding someone’s income and overall assets. Even if your income is low enough to qualify, the requirement to liquidate some of your most valuable property may make you reconsider Chapter 7 proceedings. Losing thousands of dollars in property may not be worthwhile if your debt amounts to less than those losses.
Chapter 13 bankruptcy is an excellent solution for those who have property they want to keep despite needing the protection of personal bankruptcy. How does Chapter 13 bankruptcy help protect your property?
You won’t need to liquidate anything
In a Chapter 7 filing, you must provide the courts with documentation regarding your personal assets. The trustee presiding over your case will then determine what property is exempt and what property is not. You will have to sell off or liquidate your non-exempt property before the courts will discharge the rest of your unsecured debts.
A Chapter 13 bankruptcy does not require any liquidation of your property at all. You won’t have to scramble to protect certain property, like your home equity or your vehicle. Instead, you will have to commit to a repayment plan which can benefit you and your creditors.
Negotiating a plan can make your debt more manageable
The terms of your repayment plan will include at least three, but possibly up to five, years’ worth of structured payments. You will have the necessary leverage to renegotiate certain terms on your loans, and your budget will be easier to manage after the discharge of your remaining unsecured debts.
The trustee presiding over your case will receive those monthly payments and then distribute the funds to your creditors according to the arrangements negotiated at your creditor meeting. You will then be eligible for the discharge of the remaining balance on those accounts after making the necessary payments.
Learning about the rules for a Chapter 13 bankruptcy can help you make the most of the financial and legal protections that exist for those with overwhelming debt.