Chapter 13 FAQ

Answer 1

Since 2008, more people have been laid off than any other time since the Great Depression. If you have been laid off or just can't make ends meet, your credit may suffer. When debt mounts and you can no longer pay your bills, you might consider filing for a chapter 13 bankruptcy.

Chapter 13 bankruptcy allows you to bundle your payments into one monthly lump sum payment and continue these payments for five years. The amount that you pay depends on your disposable income, as determined by the budget that you submit to your lawyer and the court. After five years, your debt is discharged.

There are several advantages to a chapter 13 bankruptcy. First, many people do not qualify for a chapter 7 bankruptcy. If you make more than the median household income for your family size in your county, you will not be permitted to file for a chapter 7 under most circumstances. In contrast, anyone can file a chapter 13 bankruptcy as long as they can demonstrate that their debts outstrip their income.

In addition, most of your assets are protected with a chapter 13 bankruptcy. As long as your home or vehicle payments are not in default, you can keep them, including a certain amount of equity in your home as determined by your state. Your assets are safe as long as you make the minimum payments. Creditors will be ordered by the court to not contact you in an attempt to collect payment.

Chapter 13 bankruptcy is not a cure-all for all for all your debt woes, however. You cannot default on your federal or private student loans, for example. In addition, if you have any co-signers on your debt, the creditors may pursue them for the payments and their credit will be affected if they cannot make the payments for you. Further, the bankruptcy remains on your credit record for seven years after the discharge. Because you must make payments for 5 years before the debt is discharged, your credit will be negatively affected for a total of 12 years.

While you can file bankruptcy on your own in many states, you should consider hiring an experienced bankruptcy lawyer. Your lawyer knows the ins and outs of the bankruptcy process in your state and she can help you save time and effort with the court proceedings. In addition, many lawyers offer a free consultation.