People find themselves struggling financially for many different reasons. People can lose their jobs when their employers suddenly announce mass layoffs, or they may face both massive bills and lost income after they get hurt in a car crash caused by someone without insurance.
There are many reasons that people find themselves in debt and unable to regain control over their finances. Those who can make a manageable debt-related payment monthly but who need to restructure their debt to make repayment workable may benefit from filing for Chapter 13 bankruptcy.
What can someone do during a Chapter 13 bankruptcy, and what is not possible?
They can stop collection activities
Filing for Chapter 13 bankruptcy results in an automatic stay that takes effect the day someone files. They generally won’t have to worry about lawsuits from creditors or other collection effort until they resolve the bankruptcy filing.
They can rework certain debts
The creditor meeting in a Chapter 13 bankruptcy allows someone to put together a payment plan using their disposable income each month. Lenders, including mortgage companies and those that financed a vehicle purchase may work with someone to adjust the terms of their loans to make them slightly more favorable. Additionally, if they complete the payment plan, they will be eligible for a discharge, which means they won’t have to repay the remaining balance on their eligible unsecured debts.
They can reduce financial burdens
The repayment plan created in a Chapter 13 bankruptcy will typically consume a significant portion of someone’s monthly income, but they will no longer need to send payments to each creditor separately. They will only need to send one payment to the courts each month, which can greatly streamline their management of their household finances.
What can’t people do in a Chapter 13 bankruptcy?
Even though Chapter 13 bankruptcy typically takes at least 3 years to complete, a filer will generally not have the option of opening new lines of credit during that time. They cannot stop making payments to the courts either, or they’ll risk needing to start over again entirely. However, if their financial circumstances change, they may be able to modify their repayment plan.
Finally, Chapter 13 bankruptcy does not allow for the discharge of all debts. Certain obligations, like most taxes and unpaid child support, will remain due even after a bankruptcy discharge. Understanding the benefits and limitations of a Chapter 13 bankruptcy filing can help someone who is struggling with debt decide on the right solution for their situation.
