When many people think of bankruptcy and the benefits that it brings, they are actually thinking of Chapter 7 bankruptcy. This is liquidation bankruptcy, where you liquidate non-exempt assets. The money that is earned from this liquidation is then used to pay off a portion of your debt, and you can have remaining financial obligations waived. The bankruptcy eliminates your debt and gives you a fresh start.
With Chapter 13 bankruptcy, however, you do not have to sell any assets. Instead, the court looks at your disposable income, consolidates your debt into a single account and sets up a repayment plan. Over the next three to five years, you will make monthly payments that will slowly pay off the debt that you owe.
Giving yourself more time
People sometimes do wonder why they would file for bankruptcy if they are still going to be responsible for the debt. If you are still making payments, is there actually a benefit?
There are some significant benefits to Chapter 13, however — starting with the fact that the repayment plan gives you more time to address the debt. You may not have been able to afford paying everything at once, but you can afford it over the next five years. Spreading those obligations out allows you to budget appropriately.
Moreover, the Chapter 13 bankruptcy filing can make your monthly payments affordable. The court will want to look at your disposable income, so you should theoretically be ordered to pay an amount that actually fits within your budget. This can help to relieve a lot of the immediate financial strain and stress that you are feeling.
Whether you are interested in Chapter 13 bankruptcy or Chapter 7, it is important to know how they work and what legal steps to take.