Chapter 13 bankruptcy is another type of bankruptcy proceeding that is available to average citizens. It operates a bit differently than chapter 7 and produces different financial outcomes. However, if you are struggling to repay your debt or cannot find a way to get on top of them, chapter 13 may be able to help.
If you are considering filing bankruptcy, chapter 13 may be right for you. Instead of selling your assets to creditors (like you would in Chapter 7 bankruptcy), you establish a debt repayment plan. This allows you to keep most of your assets while still resolving some or all of your debt.
This repayment plan is the product of negotiations between you and a federal bankruptcy court. You may consider using a bankruptcy lawyer to assist you in the negotiation process, but it is not required. If you do consult a bankruptcy attorney, you may be responsible for any fees.
The chapter 13 bankruptcy repayment plan can help you repay all or some of your debts on a scheduled basis. During the court proceedings, you will agree to make payments to your creditors within a designated period of time. The repayment schedule depends on your income.
- If your monthly income is less than your state’s median income – Three years.
- If your monthly income is more than your state’s median income – Five years.
One of the benefits of chapter 13 bankruptcy is the ability to extend some of your debt payments to the life of this new repayment plan. By extending your debt payments, you will end up paying less each month and have more time to repay it all.
Note that mortgage payments are not included in the chapter 13 repayment plan. You must stick to your original mortgage loan repayment schedule.
However, chapter 13 bankruptcy does put a pause on any applicable foreclosure proceedings. If you are facing foreclosure and file for chapter 13, all proceedings will stop to allow you time to repay your mortgage payments. Your house cannot be seized during the time you are repaying your debts through chapter 13.
During the time you file for personal bankruptcy through chapter 13, no creditor may contact you regarding any of your debts. Through your repayment plan, you will make payments to a court-appointed bankruptcy trustee, who will then disperse these payments to your creditors. Under no circumstances will you speak directly to a creditor.