How Chapter 13 bankruptcy helps you with financial hardship

| Feb 25, 2020 | Bankruptcy |

When you have more debt than you can handle, you may find yourself struggling to budget your money and cover your basic living expenses. Many people turn to questionable systems, such as debt consolidation programs or settlement services, that only increase their total debt without actually helping them resolve the underlying issues in their financial circumstances that have led to unsustainable levels of personal debt.

Far from being something to avoid at all costs, bankruptcy can be the ideal solution for those struggling financially. Chapter 13 bankruptcy, in particular, has quite a few benefits that can protect you and help you get to a more stable financial position.

Chapter 13 works better for many who need to file bankruptcy

Chapter 7 bankruptcy is a more aggressive form of bankruptcy than Chapter 13, which is why there are strict income limits on Chapter 7 proceedings. Those who don’t qualify for Chapter 7 bankruptcy or who qualify based on income but have substantial assets may find that Chapter 13 is the ideal solution.

In Chapter 7 bankruptcy, you may have to liquidate or sell some of your assets, including the equity in your home, to repay your creditors. In Chapter 13 bankruptcy, you go through a repayment period which involves three to five years of regular payments to a trustee, who then disperses your payments to individual creditors.

Once you finish the repayment plan and demonstrate that you complied with all the requirements the courts included in it, you can receive a discharge of your remaining unsecured debts.

Chapter 13 halts collection activity

Have you received notice of a potential foreclosure, the repossession of your vehicle or a pending creditor lawsuit? Chapter 13 bankruptcy provides you with an automatic stay that takes effect the day that you initially file.

Your automatic stay prevents your creditors from continuing collection attempts on your outstanding balance. That means that the courts will dismiss a pending lawsuit or halt foreclosure proceedings until the bankruptcy courts have reviewed your filing.

Your discharge will be on your credit report for less time in Chapter 13

In Chapter 7 proceedings, your discharge remains a black mark on your credit report for a full decade after you receive it. Thankfully, the same is not true for Chapter 13 bankruptcy. The courts handle that discharge record much like collection accounts or unpaid debts.

Chapter 13 bankruptcy will remain on your credit report for seven years, after which point it will no longer impact your creditworthiness. For those with high income or substantial assets, Chapter 13 bankruptcy may be the ideal way to end aggressive collection tactics, reduce your household debt and achieve financial equilibrium.